11 “Boring” Trading Strategies the Top 1% of Retail Traders Use 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 to walk you through what they are and how to use them. And at the end, I'll reveal the two that probably account for more than 70% of my profits.

Number one, to get long, short puts. This is the simplest, highest probability, and most capital-efficient strategy. I always sell out of the money puts in the 35 to 50 DTE range at the expected move, targeting deltas between 16 and 22 with a buying power reduction of 20% of the strike price and a probability of profit, which we call POP, over 80%. This is one of the most straightforward strategies in trading. It's simple, clean, and easy to adjust.

Your profit target is about 50% of the premium collected. Also, I prefer selling puts on stocks that have been beaten down and where the IVR is 30% or more. There's an old saying in this business, puts are schmaltz. This is my favorite go-to strategy and probably my primary default approach to trading. A high POP approach every trader can execute. Number two, to get long, how about a jade lizard? Short puts and short call spreads.

The jade lizard is a short put combined with a short call spread kicker. This is a great strategy for bulls who want just a little more downside protection. The keys to a jade lizard are to position the trade so there's no upside risk. To do that, [music] you need to sell a put and a short call spread where the combined premium collected exceeds the width of the strikes on the short call spread. The optimal duration for a jade lizard is around 40 DTE.

That's 40 days to expiration. Selling the out of the money put and the call spread at just inside the expected move usually yields the necessary premium. The jade lizard is a capital-efficient, very high pop trade that can be done with a single click on [music] virtually any platform. Your profit target is approximately 50% of the total premium collected. This is a heavily used strategy, especially with oversold stocks and futures options.

I've used this strategy recently in Nike, in Uber, in Netflix, and in crude oil. I would say that Jay's Lizard, next to short puts, is my go-to long strategy. Number three, to get long, covered calls. This is the classic basis reduction high pop trade that every trader has used in their journey. Ideally, you would execute a covered call on a stock that has a low basis, that means low price, and high implied volatility.

This is not the most capital efficient strategy, but it does improve your pop from approximately 54% to around 64%, which is significant. The perfect covered call duration is 40 to 60 days to expiration, which gives the buyer time to be right. We always execute covered calls as a single trade, the stock and options together, and the short strike will be somewhere between the 25 and 30 delta option. You should consider taking profits if the short strike is breached.

Not everybody tells you that. We will always close a covered call strategy as a single trade, never legging out. Also, if you want to maintain some long deltas after you close the trade, you can always replace a covered call with an out-of-the-money short put. Now, I like this strategy for cheaper stocks that I believe are oversold and stocks that have crappy or non-existent option markets, [music] such as stocks like maybe like Lucid LCID or SOXS, different ETFs like that.

I would say that I use covered calls less often than short puts and less often than Jay Lizards, but it's kind of like a once-a-week cheap stock strategy for me, and it's something that I think every trader should experience because the combination of stocks and options in a single trade is important to understand how that works. Number four, to get long, short put spreads. For those looking for a defined risk trade, an out-of-the-money short put spread is a high pop, low risk, low reward strategy.

Another reason for using a short put vertical is capital efficiency. Sometimes, the buy power reduction or BPR on expensive stocks simply requires too much portfolio capital on a percentage basis. The target credit for a short vertical spread is somewhere between 30 and 35% of the width of the strikes. The probability of profit is the inverse of the credit received from the width of the strikes. Simple math. The profit target is still 50% of the credit received, but it may take a little longer to reach your number when compared to a naked option.

The short put spread is a great go-to strategy and also a great introduction to option trading. Now, here's my little side note on short put spreads. Because short put spreads generally trade cheap, I like short call spreads to get short better than I like short put spreads to get long. I will occasionally use short put spreads, especially if I think a stock is just requires too much capital to use. Normally, I prefer naked short puts to short put spreads.

Still, I do use short put spreads. I like to use them in combination sometimes with other strategies, and I would say it's a once or twice a week strategy for me. Number five, to get long. We're switching to the long side now. Put ratio spreads. A put ratio spread is another high pop strategy that works best with oversold stocks that have high implied volatility. It's a version of a naked short put, but with some additional downside protection.

You can use any ratio you like, but most traders use a straightforward 1x2 approach. The objective of a put ratio spread is to set a trade up outside of the expected move. That's where your long strike is set, and then sell twice as many further out of the money puts to generate a net credit. It's a long delta short premium trade that does require some undefined risk. The profit target for a put ratio spread is at least the net credit received.

Any strategy where you potentially risk a lot to make a little should deliver an incredibly high win rate. The one thing that I always take from my experience trading for, you know, over four decades, is that put ratio spreads as a market maker and a floor trader was one of the first things that every trader learns how to do. Sell some puts and then buy a few bigger puts against it. I think as a retail investor, we have popularized the short put ratio spread or the put ratio spread simply because it has such a high pop.

I would say this is a strategy I use um maybe not every day, but at least three to four times a week. Number six, also to get short. Short call spreads. A short call vertical is possibly the most capital efficient and best way to get short a stock with limited risk. Call spreads generally trade expensive because of the inherent call skew priced into options. The velocity of risk to the upside is what we call call skew.

I prefer to sell call spreads just inside the expected move. Collect about 1/3 the width of the strikes. Your pop or probability of profit will be the inverse of the credit received minus the width of the strikes. A short call spread should have between a 60 to 70% pop, meaning you're collecting between 30 to 40% of the width of the strikes. And they are great use of capital to reduce some portfolio long deltas. The optimal duration for a short call spread is between 30 and 50 DTE.

And the profit [music] target should be around 50%. I feel that the short call spreads work best with stocks that you believe are overpriced or too expensive relative to the rest of the market. Again, I use call spreads in ETFs, indexes, and expensive stocks all the time. I would say I have more short call spreads on right now. It's probably my second largest portfolio position next to naked strangles, which we'll talk about a little bit later.

But, naked short call spreads is the way that I get short deltas in the Qs and the Spys, >> [music] >> in a lot of stocks that have kind of what people believe is this just crazy, you know, one-dimensional upside or hyperbolic upside risk. And I feel like short call spreads, because of the skew, just trade very rich relative to put spreads. Number seven, also to get short, the BWB or broken wing butterfly is a two-part strategy built into a single order.

It's a combination of a long butterfly and a short vertical spread. The broken wing butterfly has net short deltas, but offers added protection against an up move. Kind of a little weird. The perfect duration is about a month out in time, and you'll want to set up your long strike at the expected move and your short strike just outside of the expected move. The strategy is a long one short two long one, which we also call a skip strike butterfly.

In order to increase your POP, you should always execute broken wing butterflies for a net credit. This is a strategy you could use for earnings or for any stock you believe has gotten ahead of itself based on price. The profit target for a broken wing butterfly is at least the net credit received. If the trade goes your way, it is also possible to buy back the embedded short call vertical for less than the credit received, and then you own the remaining original butterfly for free.

When that happens, it's fun. I love broken wing butterflies for the upside, much more so than I like them for the downside. The reason I don't like the downside is because the downside trades too cheap, but the upside trades rich. So, I think broken wing butterflies as a way to get short deltas with upside protection is a strategy we use, especially for earnings, but also for runaway stocks. I would say I use this strategy a couple of times a week, one, two, or three times a week.

Number eight, to get short, sell a skewed or unbalanced iron condor. The unbalanced iron condor is a short premium trade with a directional kicker. Because call spreads trade richer than put spreads, for a skewed Iron Condor, we like to sell a call spread that is wider than the put spread. Also gives you the short deltas that way. For example, an unbalanced Iron Condor may be a short $10 wide call spread and a short $5 wide put spread.

It's still done as a single trade. This is a capital efficient high pop trade with defined risk, short premium, and some short deltas. The optimal short strike will be at the expected move of some 40 days to expiration. You should look to collect around half the width of the strikes in total on the narrower side, and the profit target is 50% of the total credit collected. This is not a trade we will leg into or out of.

Even with configurable strikes, it is a single click trade. And again, just to refresh something, you'd look to collect 50% of the credit of the narrower strikes in this case, cuz you won't be collecting 50% of the wider strikes. This is a strategy that I use all the time when I want to get directionally short, but I want to have myself have a little bit of a downside kicker. It's like a Jade Lizard with a kicker. I love this trade for getting short, but giving myself a little bit of deltas from the short put spread to offset some of the upside risk.

It's a trade again that we use maybe one to two times a week, but it's a trade that I especially like in runaway markets. Number nine, something different. To sell volatility and to sell premium. First, we like to sell an Iron Condor. A short Iron Condor is a defined risk version of a short strangle. An Iron Condor usually seeks a combined credit of between 30 and 40% of the width of strikes. It's a high pop trade, limited risk trade that requires a stock or index to remain range bound.

You're essentially challenging the underlying stock to beat you rather than the other way around. It's a simple strategy executed with a single click. We generally target between 30 and 50% of the credit received, but it is not a strategy that is easy to adjust or modify. So, I find iron condors a great engagement strategy that requires super high IVR to be profitable over long stretches. Most iron condors are easy fills that execute just a penny or two around mid price, and you can use the same approach for ETFs and futures options.

At the beginning of this video, I mentioned that at the end I'll reveal two strategies that probably account for more than 70% of my profits. So, here we go. Number 10. This one is a strategy to sell volatility or premium. I like to sell out of the money strangles. The short strangle is my go-to trade. It's been my number one and best performing options strategy throughout my career. We're going back four and a half decades.

I prefer to use the 16 to 20 delta short strikes at the expected move. I target 45 days to expiration. The short strangle is the most capital efficient, undefined risk trade, and it's always done as a single click. No legging here. The trade works best when IVR is super high. The higher the better. The profit target is always 50% of the credit received, and the adjustments to a short strangle are very common, and they're also necessary to keep your deltas under control.

You adjust your strikes of a short strangle by rolling the untested side up or down. You can always skew your deltas with strangles to reflect bias, but the trade is much more about short premium, short time value, than it is about anything else. The strategy can be used on listed equity options, can be used on index options, ETFs, and even futures options. The short strangle has been, you know, something that I think, you know, every trader has kind of lived or died with for their entire career.

The mistake that most people make when it comes to short strangles is that they trade them either too big and they don't have enough capital to support their size, or they trade them when volatility is too low. Your friend is high IVR, your friend is high implied volatility, and you must keep your size in check, and then keep your short strangles non-correlated. I would say that on an average day, I do at least two, three, four, or five short strangles in different underlings, and I adjust at least two, three, four, or five short strangles.

So, it is absolutely the majority of my trades. Last and number 11 is price reversion to the mean. This is where I get directional. There are two ways to play price reversion to the mean. One is by selling volatility, because volatility is a mathematical equation, and the other is by using a strategy that we call basis arb or pairs trading. It's a little more complex, but when volatility goes up, it must come down. And that is very different from price.

When price goes up, it doesn't necessarily have to come down, but when volatility goes up, it has to come down. So, but selling volatility or buying it is not easy. Volatility contracts about double the time it expands. So, that's why we prefer the short side of implied volatility. As for pairs trading, you're essentially trading the spread between two products. We prefer to use futures for this, but you can also use stocks.

Futures are just much more capital efficient than stocks. Pairs trades can also reduce the risk of two highly correlated underlings by up to 80%. But, the strategy still holds a ton of risk. So, no misconception here. The key to pairs trading is understanding volatility adjusted notional when it comes to the correct ratio to use. The profit target is subjective, but it should be in line with the risk or percentage of the daily move.

Now, I don't use pairs trading every day, maybe a couple times a week, or maybe once or twice a week, but I do use what I call more of a subjective contrarian approach to implied volatility. Sometimes it's not a strangle, sometimes it might be a short call, sometimes it might just be a short put, sometimes it might just be the way I trade, and that makes up the majority of my trades along with short strangles. And that's where that 70% number comes in.

All totaled, these 11 strategies have served me well through 45 years of trading. If you found this piece helpful, please like and share this video. Also, let me know your thoughts in the comments. I read everyone and I try to respond to every single comment. Thank you so much for your time.