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Where Is 'Carry' in Your Options Chain? | Trading Deep Dive
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0:00lesson
Adjusting for skew, duration, or size in rising rates
- Skew is market-determined, not trader-controlled
- Duration and size are trader-controllable factors
- Extend duration by trading longer-term options
- Size small to manage risk
2:01lesson
Duration vs. long duration stocks
- Duration refers to time to cash flow recovery
- Long duration stocks are more sensitive to rates
- Apple is short duration, speculative tech is long duration
- Russell 2000 companies have weaker balance sheets
3:34lesson
Strategic positioning in higher rate environment
- Avoid short premium positions in indexes
- Seek short delta exposure in Russell 2000
- Trade long put spreads near key levels
- Avoid speculative tech in higher rate environment
5:16lesson
Why options reprice with rate changes
- Option value is based on forward stock price
- Carry cost is embedded in option pricing
- Higher rates push calls up, puts down
- Combo price reflects cost of carry
7:35lesson
Carry and put call parity
- Option holders don't receive dividends
- Carry sits within put call parity
- Interest rate changes affect call/put values
- Calls up, puts down with higher rates
9:28lesson
Catalyst timing and option pricing
- Options reflect market's view of stock movement
- Cheap IV doesn't mean mispriced
- Event timing is not necessarily missing
- Compare term structure before/after event
11:12lesson
Efficient markets and pricing
- Markets price in all available info
- Non-material info may also be priced in
- Look through term structure for event impact
- Historical volatility can inform trade decisions
12:53lesson
Liquidity in spread trading
- Liquidity of long leg affects short leg
- Trickle-down liquidity in spread trading
- Price discovery in thin legs
- Exit risk changes with liquidity
14:55lesson
Trading schedule and contact info
- Tasty Trader streams on specific days/times
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