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Tuesday, March 10, 2015

tastytrade - an unbiased review

Warning: This post is going to be much larger than usual.

I wrote a review of tastytrade back in April 2013 when I had been watching the show for a few weeks, quite possibly not more than a month. It's only fair to write another one now that the show has evolved and I have had the opportunity to digest much more content and become more familiar with it after two years.

tastytrade has become somewhat controversial. It's like the New York Yankees, with legions of fanatics and tons of haters, but very few people staying neutral. From what I have seen, they have many more lovers than haters, but boy do the haters take it seriously. I want to put the passion aside and be objective on this post in order to write as fair and unbiased a review as possible so that people can make the best out of it without falling into endless unproductive arguments and personal attacks.

My first disclaimer: I am not a tastytrade hater although I may have given that impression in the past. As you saw, I went as far as dedicating one article to them in order to help their cause back when they had around 15000 viewers a day only and I thought it was good to spread the word. I have also praised them directly in the past on a couple of occasions for different reasons and I consider they have brought many good things to the retail trading world, which I will enumerate later on. So, I'm not a hater.

Disclaimer number two: I am much less experienced as a trader than the folks on the tastytrade network. So, you shouldn't take my words as the holy Bible. I am however a huge fanatic of the markets and eagerly digest more trading related content in a week than most people in a year. I'm also a software engineer and have designed dozens of automated trading systems in the last 5 years and spent countless hours of my life theorizing, testing and optimizing. I also have a full time job at a financial institution so I breath markets every second of this life. It's my passion.

Even though I'm not an official hater, I do see some things on the show that I think could be improved. Taking into account of course that they are not in the business of pleasing everyone and also that when you stick your neck out every single day to hundreds of thousands of eye balls, it is extremely challenging and really impossible to not draw criticisms and to make everyone happy in the end. So, my respects for that.

I'll talk about the good and the bad. I'll go with the bad stuff first in order to close on a positive note with the good. If I did it the other way around (good first, bad second) then the article would end up on a negative tone, which I don't want to. I believe in the effect of positivity and optimism and prefer to finish it all on a positive note. These are all personal opinions of yours truly, a flawed non-perfect individual with whom you won't always agree.

So, here it goes.

The Bad:

- No single trading strategy in the world is perfect and superior.
If everybody in the universe traded the same perfect profitable strategy and nothing else, guess what? The strategy would stop being perfect and profitable because somebody has to lose. Someone makes money, someone has to lose it. We're talking about active trading and not investing here. Because the trading Holy Grail doesn't exist, it is not a very intelligent exercise from the hosts to criticize other strategies that are not based on selling Options using Implied Volatility Rank as a guideline. Negating the profitability and viability of other trading styles is ignoring history. It's ignoring the huge academic evidence documented by serious experienced traders/authors (I'm not talking about sensationalist CNBC or MarketWatch). This happens almost every single day. To illustrate my point, a few days ago they were saying something like "there is no such thing as a trend", questioning the existence of one of the tenets of the markets. On another occasion they talked about the Turtle Trading system and how it had been negative for the industry in that it created a legend, a hype on something that just randomly happened to work in the past but has never been applicable while we have seen on this humble blog that is far from being the case. These are just two recent examples but it is applicable to everything else: Chart analysis, patterns recognition, suspicious options trading activity, break out trading styles, trend followers, long term investing. You name it, they will discredit it. The only thing that works is selling options based on implied volatility rank above 50%. A newbie trader will tend to adhere to this advice as the Bible, especially when heard from two market veterans of 2-3 decades and this is what I have a problem with. It discourages research, it discourages self-discovery and study on the individual rookie trader limiting their growth and potential and tying them to one system which in the end is no holy grail, just another vision for trading the markets. Where does this leave the thousands of very successful investors that have made fortunes over the years not selling Credit Spreads? Where does this leave the countless CTAs that have been able to ride monster futures' trends in the past whose returns have been properly audited and documented? Where does this leave the insider traders that have made huge suspicious bets right before an "Excellent" press release comes out and end up making millions or going to jail? (Almost always making the millions). The markets are not random and IVR based options selling is not the only way to make money in the markets.

- Trading small and often. This advice, although wise in larger accounts and for very experienced traders can be very harmful for rookies and for traders with not so large accounts. If you trade too often, in general this means there are many suboptimal entries where you don't have a mathematical edge in your favor. Very active trading is in many cases the result of an addictive behavior, the inability to restrain yourself and not the result of a well studied concise edge. Very active trading is also not suitable for most people with a day job. It is also very stressful which many individuals simply can't handle, inevitably resulting in making harm to their accounts. In terms of costs, if you trade 5,000 positions per year and each one costs you one dollar, only one dollar which is a ridiculously low price, you are spending $10,000 in commissions (entry + exit). Assuming that you have a $25,000 account, this means you need to make 40% return per year on your portfolio just to break even. On a $100,000 portfolio you would need a 10% return just to break even. Needless to say, if the S&P500 returns 7% per year on average, and 90-95% of traders fail to beat that performance, including professionals, then a 10% drag on the performance of your portfolio just due to commissions is extremely damaging and in most cases doomed to failure. There are many instances of profitable mechanical trading systems and CTAs that trade based on riding long term trends which may end up making 20 or 30 trades per year only. You can also implement powerful and well diversified momentum based ETF Rotation systems making less than 50 trades per year with a great likelihood of beating the markets. You can simply invest passively in indexes or dividend growth stocks. All these basic approaches offer viable long term alternatives and do not require you to trade small and often.

- Some of their practices are questionable and in large part responsible for the hosts' under-performance.
For example if volatility is your edge then why try to outsmart the markets scalping futures? a product with no volatility component? Where is the study suggesting this could be a profitable venture? As I said, I am not as experienced as the hosts, far from it, but I have digested hundreds of trading related materials and I have never heard of anyone becoming wealthy scalping futures. Notice that I'm not saying that trading futures profitably is impossible. Of course not. I'm talking about scalping. More specifically discretionary scalping (without any risk management methodology).

- If the markets are random (which they believe it is), why make directional futures bets against the trend with no other edge than market direction? Scalping futures does not offer a time decay component or a volatility collapse edge, so they are trying to make money entirely based on guessing market direction in an environment that they believe is perfectly efficient. There is obviously a conflict here where their doing (betting on direction) contradicts their believes (markets are random). If markets are truly random, then this practice will lead you to 50-50 in the long run, which is a bad proposition because net net you will end up losing money to commissions and slowly killing your account.

- If trading small is a necessity then why let small positions become giant losers? If you go long Oil at 80 and it goes down to 50, your loss eventually gets bigger regardless of how small you traded. You can trade the spot Forex EURUSD as small as you want, that if you go long Euro at 1.28 and it falls to 1.07 your loss will be significant at one point. You can short the Nasdaq at 3500 with as small a position as you want, if it goes to 4500 and you haven't closed your trade it will eventually become painful and may take years to recover if at all. I know I'm not being exact to the penny with these numbers as I am not subscribed to the "Bob the Trader" app, but this is the general perception and roughly some of the neighborhoods I remember. This is perhaps one of the most damaging practices for new traders and really for anybody with a less than 7 figure portfolio which takes me to the next point: cutting losses.

- Why are stop losses the devil? It is true that, in general, stop losses degrade the performance of most trading systems. However, this generally happens for tight or not well placed stop losses that inevitably lead you to get stopped out and locking losses more frequently than necessary. I believe at least a last faraway safe guard must be placed to protect capital. The practice of letting losers run indefinitely is really unhealthy as evidenced by the number of callers suffering every day because of it.

- Ignoring their own studies
On many occasions they ignore their own studies. I don't have time to enumerate them all but for example related to cutting losses being a good practice. It is not only my believe after programing and refining dozens of automated trading systems, it is also what their own studies like this one demonstrate. Why they bash the cutting losers practice while their own studies suggest that it is beneficial is beyond me. That same study shows that adjusting by rolling the tested side is more profitable yet they still insist to this day that the best approach is rolling the untested one as if this study never happened. This is one single study with two important takeaways: cut losses, roll tested side, both ignored. All based on percentage of winners, which in the end is an irrelevant statistic. There are many more, but you get my point.

- Duration over direction.
If you claim that the edge is in the duration of your trades giving you enough time to eventually be right, then why trade one day binary events such as earnings where you are collecting many winners and one single loser is devastating? Where you have zero chance of defending yourself when things go wrong. Trading earnings can be a profitable venture, but I believe it is a combination of both buying and selling premium as evidenced by two very serious sources I have followed for years which consistently make money. Anyways, a point should be made that these events should be traded with much smaller position sizes than the other "standard" trades as that practice can have very negative connotations.

- Constantly calling other people stupid, even people that are making money while you don't. Although this may be fun for some at the beginning, the viewer just gets tired of it after a few repetitions and seriously it doesn't bring any value to the show. There are many serious professional traders in the business and not all of them are a-holes. Certainly many of them have way smaller egos and perhaps wouldn't call them stupid in return. Also, not trading that particular style should not automatically qualify anybody as an idiot. Otherwise almost everybody is an idiot then. I know I am.

The Good:
In spite of all the criticisms the tastytrade network has many positive undeniable points in their favor:

- One network of real traders making real bets with real money, providing actionable ideas and not the general useless bla bla bla of the traditional financial media where gurus always look cool and genius. This provides an immense value because even if their trades go bad you always learn something, at least you learn what not to do.

- They open the eyes to the uninformed public about the sometimes abusive fees charged by under-performing institutions for managing your money.

- They provide a friendly introduction to the trading world for many people interested in the markets who in the past only got lost and discouraged with the immense sea of information (misinformation?) and mess that exists on the Internet. More people truly concerned about their finances can only be good for society.

- One more network -> one more show -> more content available -> more competition -> more value. The small guy ends up winning.

- Free education for introducing obscure and sometimes complex concepts for which in the past you were unmercifully charged $2,000. I'm not saying trading coaches are not worth what they charge. Some of them truly are. But there are way too many charlatans out there.

- They have introduced us to Karen the Super Trader who has been kind enough to explain her strategies to the last detail. This has formed and influenced the styles of many traders around the world (myself included) and it has also been very encouraging and motivating. There are doubters out there who believe she's a myth. My goal is not to reveal people's identities on this site. Karen is a real trader, with a real fund and real returns managing millions. With some basic Google search skills you can find out all about her, her funds, assets under management, etc.

- There is great value in showcasing a variety of styles and the hosts recognize that. This is why they have left the likes of Tim Knight, Slim, the Shadow Traders as part of the core of the show in spite of trading other styles that they don't agree with. You may not like this segment or the other but nobody's forcing you to watch them all! Do you enjoy chart analysis? Do you love cyclical analysis? Do you prefer momentum or break out trading styles? There's always something you can focus your attention on and discard the rest if you want.

- Commission reductions for Canadians and perhaps for other countries in the future. This is a tangible benefit and I don't care if they receive compensation for my trades. The point is, I'm paying much less in commissions thanks to their business with TD Canada and for that I can only say Thank you.

- They provide company and entertainment to lonely full time traders from home.

- It has made trading way more sociable, allowing us to meet other great people and like-minded traders on the social networks. This is wonderful and wouldn't have been possible without the existence of tastytrade.

As you see, I'm of the opinion that their trading practices have some flaws that can be very dangerous to the not so experienced or not well capitalized traders (the majority) but there are also many good points. There is room for improvement but that can only be good! Otherwise life would be too boring. Perfection is boring.

So, there you have it. My own personal opinion formed from watching the show for more than two years now. Hating doesn't lead the world to anything folks. Of course it may be frustrating for someone who lost significant amounts of money following their strategies, which in the end shows that trading is one of the most challenging endeavors anyone can undertake in their life. That's why my advice is, watch the show and recognize its values as much as its flaws. Take it all with a grain of salt. Be wise. Study. Find what works for you. Do not drink the kool aid. Always paper trade the validity of your ideas for months before you jump in. Make the show good for yourself by being positive and watching the segments that you like. If you absolutely hate it all without remedy, at least you have one more topic of conversation in this life which makes you a more interesting individual.

Thanks for dropping by folks!
If you liked this article be social! Feel free to share.

You can follow me on Twitter @lazytrading

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  1. Thanks for this well written article. I heard about TastyTrade but was never a fan of this show. I only watched the interviews with Karen the Super Trader.

    My conclusion from this article is that you have to be very careful putting your trust and faith in any 'guru'. If they don't have a proven track record of success, you have to take their advise with a grain of salt.

    There are only 4 principles of successful trading:

    1.) You must have a trading edge. If you don't have a trading edge, you will eventually lose money.

    2.) You must have risk management. Even if you have the best trading strategy in the world, if you lack risk manage, you will lose money.

    3.) You must be consistent. This article demonstrates that the folks at TastyTrade don't follow their own studies and do things that are inconsistent with what they preach. If you don't trade in a consistent manner, it is hard for others to follow your advise.

    4.) You got to keep it simple. Complex strategies are not better than simple strategies. People put too much importance in complex ideas when some of the best trades are so simple to put on.

    You can follow me on Twitter @lienjonathan where I tweet my high probability credit spread trades in real-time for free. You can like my Facebook page and see all my open and closed trades and track record below.

    1. Wise points which you have reflected upon in the past. Thanks for sharing them over here. I agree with all of them.


  2. This is well thought out and comprehensive article, LT! I could not have said it better! I have learned a wealth of information from Tastytrade, and for that I am extremely grateful. However, that education has come at a huge cost financially. I think the greatest takeaway for any new trader is the following:

    1. Learn as much as you can from as many reputable sources as you can. There is a lot of garbage on the internet these days and it can be difficult to separate the good from the bad. I would consider sources like,, and of course this site (and my own site) to be reputable sources of information where you can learn about trading.

    2. Do not blindly follow another trader's trades. This is the mistake that I think many people make (I can speak from personal experience), whether it be following the trades on Tastytrade's Bob-the-Trader app or on my own site. Everybody has to learn what trading approach works for them. Just copying another trader's trades without understanding their approach, risk tolerance, account size, etc. is a recipe for disaster. I subscribe to several option trading services and I duplicate very few of their trades. It is a learning platform. I then do my own research and place trades that fit my style, risk tolerance and account size.

    Thank you for writing this follow-up article, LT. I have been working on a similar article for my blog and now I don't have to spend any more time on it since you have covered all the bases very nicely!

    Aram Basmadjian

    1. Thanks Aram,
      You learned your lessons man. Tough, but one way or another it happens to every successful trader. I haven't met single successful that never suffered any pain or significant loss. Pain and losses are our school and for good or bad your initial school was tastyTrade.

      You look on your way to profitable, sustainable trading mate. Which is great.
      Nice site by the way.


  3. Hi LT,

    I am one of the probably thousands of silent readers of your Blog (I've never commented). Today, I would like to say "Hello". I follow your Blog since more than a year and I am really impressed about your diligence and enthusiasm in Trading and maintaining your Blog!

    I am trading monthly RUT Credit Spreads and Iron Condors since 2013 based on a very simple strategy and had one loosing month so far (I decided to adjust because one leg was close to be ITM at expiration. At the end, it expired OTM ...). In my daily job, I am working in the IT industry.

    I would like to comment on your review of TastyTrade. I agree with all of your comments. I would just like to add that I am anyway very thankful to TastyTrade's founder Tom Sosnoff for creating ThinkorSwim. I know that it has nothing to do directly with TastyTrade, as he created ToS some time ago, but anyway. ToS is a great tool and I am using it everyday. In particular, it helped me a lot to strengthen my trading strategy by using the backtesting features (ThinkBack).

    In addition, I am always surprised about how many people are impressed by Karen The Supertrader (as I am, too!). I watched all the interviews on TastyTrade and read what I could find about her. I will probably never follow her approach, but sometimes, I am thinking about it ... :-)

    Anyway, thanks for your great blog and all the best for your future (I read about your plans, too). And thanks to Jonathan as well, I really appreciate his comments as I appreciate LT's blog entries!


    1. Hey Tom,

      Glad to have you as a reader and thanks for leaving your first comment.

      As for your RUT trading system, great you found something that works for you. It is a little frustrating to adjust one spread just to see that it wouldn't have been a loser in the end. But it is a necessary evil in order to protect capital. So, I say, keep doing it. Never let price penetrate your short strikes like some people out there.

      I also think that the TOS platform is the best. I have, for example tried Interactive Brokers like three times but I have given up because I find it complex and unfriendly. TOS is so easy, so free of clutter, so intuitive that I think I will never stop using it, even though I'm aware that I may get better commissions with others.


  4. Good article.

    I found that not only tatsytrade dismiss all other strategies except for selling premium (usually naked), but they also tend to skew their so called studies to reach conclusions that suit their agenda.

    Take a look:

    1. Thanks Kim.

      I do think they might be biased with some studies. Other studies also have small sample size, which is not ideal.

      I've been a long time follower of yours.
      Keep it up.

  5. I must say that to me, the whole tastytrade/TOS connection is very fishy.

    Think about it: Tom Sosnoff mantra is “trade small, trade often”. Who benefits from it the most? TOS. But wait - isn't Sosnoff one of the shareholders in TOS?? To me, this is HUGE conflict of interest.

    1. It is indeed a huge conflict of interest and something I forgot to mention in the article.
      Thanks for your input Kim.


  6. best review :) couldnt agree more..

    "trade small trade often" at first i thought it was the dough slogan.. (lol, forgive me tom)

    while "small" is relatives, i agree to manage capital risk to a certain level
    but "often" is not a good advice if trader doesnt has a good setup/ trading plan
    its better to reserve capital for better trades, rather than to trade something everyday

    also i like to manage my winners AND losers
    ignoring losers because they have a chance to be profitable someday is not a good plan
    tastytrade should have studies for managing losers too (being objective)

    i am a fan of both tastytrade and thelazytrader (new fan)
    learn a lot from you guys

    keep up the good works :D

  7. I'm late to discover this thread, but just wanted to say how much I appreciate finding a group of respectful, dignified people. Most of the Internet, sadly, exposes the genuinely malevolent, vicious underbelly of human nature. Glad to see that's not the case here.

    I agree with virtually every observation in the original post and comments, except the one from Lazy Trader that "TOS is so easy, so free of clutter, so intuitive ". I opened a ToS account about five months ago, and my experience is 180 degrees the opposite. I have used many a platform in my day, and was eager to get on ToS b/c of all the positive buzz and near-universal praise it receives. Well, all I can say is, for me, it has been a colossal disappointment. I find it extremely difficult, non-intuitive, difficult to read (literally - fonts even at maximum zoom are incredibly small), and painful to navigate. I even scheduled a help session with a ToS Tech one day, with a list of questions prepared for "how do you do this, how do you do that", etc., and at one point, the tech said, "You know, I don't think I've used the word 'can't' so many times in a call before". Apparently I'm asking questions others aren't.

    That said, trading platforms are like just about anything in life: One size does NOT fit all. ToS most certainly doesn't fit me. In fact, my tiny Roth IRA account that I opened on ToS has sat dormant for about a month now, so incredibly frustrated was I with trying to learn and use it. I've been trading my other accounts on other platforms, and have yet to decide whether to transfer my ToS account to one of my other accounts or not. I'm certainly open to suggestions.

    Thanks again, all, for a respectful forum that (so far) is thankfully absent the usual trolls.


    1. Thanks for your input Trader1962.

      Liking something, deciding what is good or bad, pretty or ugly is always a subjective call. In my case it is the contrary. I always see other platforms as inferior when compared to TOS and TOS just comes natural to me. Perhaps because it was the first one I studied so I may be biased. I know many traders share my opinion but that being said it is good that you share yours because many others out there may feel just like you. One size does not fit all. Truer words were never spoken.

      Thanks for sharing your experiences.