Options Trading:Karen the Super Trader

Options Trading:Karen the Super Trader👩

Karen the supertrader ignited the minds of traders everywhere when she first appeared on the popular option traders TV show TastyTrade. She was a retail trader who had built her account of $100,000.00 USD into 105 million USD over the course of 3-4 years and was now / then the largest retail account in the history of online trading.

Everyone was anxious to hear her secret methods and it was surprising to most to hear her strategy, because it was based on simple math and probabilities, plus a lot of watching and adjusting trades. Her strategy is to sell naked puts and naked calls in the 95th percentile, 60 days out, and She liked to say “...once I received the premium, I don’t give it back”. She actively managed her positions, she started in the 95th percentile, where there was a 95% chance of the positions finishing out of the money, expiring worthless and she would keep all the premium. However she allowed the position to follow the stock moving away and towards her position, as these things do. But when the position moved against her to the 70 percentile, she didn’t close her positions for a loss, she would roll them forward to the new 95th percentile but same month, just a later date and give herself “more time to be be right”, which is option traders parlance for giving the market more time to move the price in her favor until the position expired. Now she wasn’t selling condors or spreads, she was legging into wide strangles essentially. She sold a Put near the 95th percentile and she sold a Call in same underlying, same expiration, but strike price at the opposite end near the 95th percentile, or closer up to the 85th percentile to capture enough premium to make the trade worthwhile. Additionally if the Put side was the unaffected side she would roll the Put side OTM, but also frequently roll the Call side too, but now closer to the money, to collect more premium. She would also consider doubling up on the Call side to make back any premium she lost on the Put side. She would take either side off in the first week if she hit a 33% profit point or take off either side when it hit 50% in the couple weeks after that, otherwise she waited to near expiration to close.

She traded on Margin, and because of the size of her account, she had institutional margin rates which allowed her to sell Calls and Puts in the 95th percentile where premiums are small, but wins are a sure thing, in sufficient volume of 100 contracts to make the trade worthwhile. It’s important to step back at this point and think about a couple things. In options the greater the risk the larger the premium. Correspondingly the smaller the risk, the smaller the premium. Karen trades at the 95th percentile, which means there’s a 95% chance of her strike prices being out of the money in 60 days, so she would win and keep all the premium. But there’s a 5% chance of the market finishing above her Strike price and she would have a loss. So her upside was small, but high probability, her downside was large, but low probability. But she traded 100-200 contracts or more, and she picked liquid positions which meant there were plenty of buyers should she need to sell a position and roll into another date. Plus she watched her positions all day while the market was open. That may seem excessive, but when your making hundreds of thousands to millions of dollars per year. This becomes your full time job. Finally, even though she traded large numbers of contracts, between she watched them daily, so she could respond and prevent losses most of the time.

As you might expect; She is legendary in the Option trading community. If you would like to know more, I suggest you watch her TastyTrade interviews.

✍️ written by Shortsegments

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