What Are the Top 11 Effective Trading Strategies?

TL;DR

The most successful trading strategies are often the simplest and least glamorous. Key strategies include selling short puts for high probability trades and using jade lizards for limited risk with upside potential. These approaches, along with others, have proven effective over decades, emphasizing high implied volatility and disciplined trade management.

Transcript

I'm Tom Sosnoff. I've made over a million trades in my life. Last month, I looked back at everything I've traded and something clicked. Nearly every single trade I made was boring. I've been trading for 44 years. I've watched every genius strategy come and go. What's left are these 11 boring strategies that actually work. In this video, I'm going t... Read More

Key Insights

• Short puts are a high probability, capital-efficient strategy ideal for getting long.
• Jade lizards combine short puts and call spreads for bullish trades with no upside risk.
• Covered calls improve probability of profit and are best used with low basis, high volatility stocks.
• Short put spreads offer defined risk and capital efficiency, suitable for expensive stocks.
• Put ratio spreads provide high probability long delta trades with some downside protection.
• Short call spreads are capital-efficient ways to get short with limited risk.
• Broken wing butterflies offer short deltas with upside protection, ideal for earnings or runaway stocks.
• Unbalanced iron condors provide directional bias and are capital-efficient, high probability trades.

Questions & Answers

Q: How to use short puts in trading?

Short puts are used to get long by selling out-of-the-money puts with a high probability of profit. The strategy involves targeting deltas between 16 and 22, with a buying power reduction of 20% of the strike price. It's best applied when implied volatility is high, and the profit target is about 50% of the premium collected.

Q: What is a jade lizard strategy?

A jade lizard combines a short put with a short call spread, aiming to collect premium exceeding the width of the call spread strikes. It offers downside protection and no upside risk, typically with a duration of around 40 days to expiration. This strategy is capital-efficient and suitable for oversold stocks with high implied volatility.

Q: When to use covered calls?

Covered calls are ideal for stocks with a low basis and high implied volatility. They improve the probability of profit from around 54% to 64%. The optimal duration is 40 to 60 days to expiration, and the strategy is executed as a single trade, combining stock and options. Profits should be taken if the short strike is breached.

Q: What are short put spreads?

Short put spreads are defined risk trades that are capital-efficient and have a high probability of profit. They involve selling an out-of-the-money put and buying a further out-of-the-money put, targeting a credit of 30-35% of the strike width. This strategy is suitable for expensive stocks where capital is a constraint.

Q: How does a put ratio spread work?

A put ratio spread involves selling more puts than you buy, typically in a 1x2 ratio, to generate a net credit. It's a high probability trade with long delta and short premium, best used with oversold stocks with high implied volatility. The profit target is at least the net credit received, offering downside protection.

Q: What is the purpose of short call spreads?

Short call spreads are used to get short with limited risk and are capital-efficient. They involve selling a call spread just inside the expected move, collecting about 1/3 of the strike width. The strategy is best for stocks believed to be overpriced, with an optimal duration of 30 to 50 days to expiration.

Q: How to execute a broken wing butterfly?

A broken wing butterfly combines a long butterfly with a short vertical spread, executed for a net credit. It offers short deltas with upside protection, ideal for stocks with runaway prices or earnings. The strategy is set up with the long strike at the expected move and the short strike just outside, with a profit target of at least the net credit received.

Q: What is an unbalanced iron condor?

An unbalanced iron condor is a short premium trade with a directional bias, often achieved by selling a wider call spread than the put spread. This setup provides short deltas and is capital-efficient, with a high probability of profit. The optimal short strike is at the expected move, and the profit target is 50% of the total credit collected.

Summary & Key Takeaways

• The most effective trading strategies are often the simplest, focusing on high probability and capital efficiency. Short puts and jade lizards are highlighted for their effectiveness in generating profits. The strategies emphasize the importance of implied volatility and disciplined trade management.

• Tom Sosnoff shares his top 11 trading strategies, revealing that the majority of his profits come from just two: short puts and jade lizards. These strategies focus on selling premium, managing risk, and capital efficiency, showcasing the importance of high implied volatility.

• The video outlines 11 trading strategies used by top retail traders, emphasizing the importance of simplicity and discipline. Key strategies include short puts, jade lizards, and short call spreads, all of which leverage high implied volatility to maximize profits and manage risk effectively.