[00:02] is the biggest mistake? They're trying to search this shiny object syndrome. to search this shiny object syndrome. They consistently looking for new secret strategy and uh thinking that there is some edge. I discovered that uh your
[00:17] strategy is really not your edge. If we cannot predict market direction, why target it? Why trade it? So many of us look for the perfect options strategy.
[00:29] Butterflies, iron condors, time flies, triple calendars, whatever. My guest goes the opposite way. Forget about strategies. He says strategies are
[00:42] about strategies. He says strategies are not our real as options traders. Welcome to Roman. >> Hi John. Thank you for having me. >> Roman, let's get straight to the topic. You claim that the real edge for an
[00:55] options trader is not the strategies but having a market neutral portfolio. Why is that so important? >> That's correct, John. I watch a lot of your speakers in the channel who present fantastic very creative strategies
[01:11] starting from calendar spreads, butterfly spreads, flyagonals, flyagonals and many many fantastic strategies. But what traders do in my opinion, what is the biggest mistake? They're trying to search this shiny
[01:26] object syndrome. They're consistently looking for new secret strategy and thinking that there is some edge. But as based on my experience managing hedge fund and almost 20 years trading as individual investor, I discovered that
[01:43] your strategy is really not your edge. Because when you focus on real portfolio management, you can build very consistent very profitable portfolio
[01:55] using almost absolutely random strategies. So you don't need to focus strategies. So you don't need to focus on strategy. But the edge is if you focus on high level portfolio metrics such as buying power in check,
[02:09] productive to net liquidation value and buying power usage. And based on that key metrics, you can build very productive portfolio when strategy is almost uh doesn't matter for your success.
[02:24] >> And I can tell you Roman, this is an area where I myself have a lot to learn. So I'm really curious about what you will share with us in this interview. But first, tell us a little bit about yourself, especially as an options
[02:38] >> Sure. So I have more academic and corporate background. I started my corporate background. I started my career in a huge huge custody bank and career in a huge huge custody bank and corporation. Then I switched to IT to
[02:51] software engineering to data scientist. I studied also data scientist and then I switched to IT management. But my biggest passion was always quantitative trading. I did a lot of mistakes for almost 20 years. I read all the possible
[03:08] books. I did all the algorithms in Python, all possible like option strategies, everything, everything you you can find, every kind of analysis, every kind of strategy, every kind of market edge. I tried it probably and I
[03:26] made so many very dumb mistakes. This this is the the the topic I choose because when I go back to to my history of of my trades and my my trading career really when I started to be more consistent and more predictable. It's
[03:43] the moment when I start when I stopped focusing on individual strategies, individual trades, but I shifted into portfolio management and high level portfolio management like hedge funds do. Roman, where are you from and where
[03:58] >> Actually, I'm originally from Poland, but currently I'm based in UAE. >> Exactly. >> In this interview, we will not talk about a specific option strategy or
[04:12] rather about how to build a smart portfolio of options strategies. And let's start with a basic. What do we mean by a market neutral options
[04:25] portfolio? Roman. >> Yeah. So market neutral portfolio is a >> Yeah. So market neutral portfolio is a portfolio when we don't try to predict market direction. We're just very honest and even after 20 years in quantitative
[04:40] finance I can say that I cannot predict the market. I don't know anything about market direction. And we can be honest with ourselves and just just say that we
[04:52] don't have this this skill to predict market direction. So if we cannot market direction. So if we cannot predict market direction, why target it? Why trade it? Why use directionbased strategies? So the academic approach and
[05:06] hedge fund approach behind this portfolio construction is that there is special quantitative methods to completely eliminate market direction completely eliminate market direction for from our portfolio and focus on one
[05:20] for from our portfolio and focus on one thing that is consistent and what is sure in option trading which is theta decay. So we can completely eliminate market direction from our portfolio and focus on extracting pure
[05:36] portfolio and focus on extracting pure daily data decay to make very consistent profit every single day no matter which direction market goes. >> Why do most traders struggle with achieving this?
[05:48] >> Honestly because I think nobody teaches it. Uh because even from a commercial point of view for traders for options educators it's much easier to sell a
[06:01] educators it's much easier to sell a course with some kind of shiny objects secret new secret strategy which you can use but in reality building portfolio is use but in reality building portfolio is more academic concept more used by
[06:15] investment fund more used like hedge fund and there is like no nobody nobody basically teaches This is like knowledge which is which is not like commonly promoted in any any materials and the presentations and the YouTube and the
[06:29] courses. So I think this is kind of unique but once you understand it once you truly learning how to manage your portfolio independent of market direction how to extract pure time decay and eliminate market direction from your
[06:45] portfolio it will change everything >> and to understand the rest of what we're going to talk about I guess there are some terms we should some core terms we should just very briefly define or explain here what would be the core
[06:59] terms we need to understand. >> So I think the most important snapshot from uh academic research I'm doing is to understand that volatility can be view as a separate asset class. So most people think about stocks which is
[07:15] ownership. You are basically paid to own the company. We call it in academic word equity risk premium. There is another asset class which is bonds. Commonly know it's it's lending. you are paid to lend but what I'm trying to promote is
[07:32] that volatility which is insurance premium can be view as separate asset premium can be view as separate asset class we can invest in volatility is the
[07:45] class we can invest in volatility is the asset class almost no one allocates to because it looks too complex too difficult to individual investors to difficult to individual investors to understand but it's structural it's uh
[07:58] permanent a bit for protection because hedge funds needs to pay for protection. Retirement funds needs to buy protection. Many investment companies needs to buy pay for protection and this demand for insurance keeps options
[08:14] demand for insurance keeps options priced above their fair value. And the gap which is shown in the next slide is the pure premium we are able to harvest. And like to mention here a lot of academic research that proves that since
[08:29] 1990 the implied volatility has set above the the implied volatility has set above the realized volatility about 84% of the time. So it means that we premium sellers as option sellers we make profit
[08:46] about 84% of time on average which is not the case for people who simply own the stock >> and this is the basis of many of the strategies we also have presented here on the profits I mean to
[09:02] going to have there are a couple of other terms that you need to understand of one of course is the Greek delta which tells how much the price of an option will change with the change in the underlying. It is theta which is the
[09:17] time decay of the option. But we also have the term beta weighted delta. What >> To understand the weighted delta we first need to understand what uh beta
[09:29] first need to understand what uh beta is. So beta is basically a number which is. So beta is basically a number which tells you how hard a stock swings with the market. So let me give you example. If the market the the wide market which
[09:43] is for instance S&P 500 if market rises by 1% stock with beta 0.5 will move only plus.5%. If beta is one, it means that the stock
[09:57] moves exactly as the market beta is higher than one. For instance, 1.7, it means that the stock is more volatile, more sensitive to market movements. So,
[10:09] more sensitive to market movements. So, for instance, if uh market rises 1%, a for instance, if uh market rises 1%, a stock with beta 1.7 will move on average by 1.7%. And a great example of stocks with high
[10:23] high beta are for instance Nvidia or technology stocks like Tesla, like Google, they are all high high beta high beta names which means that usually you can observe they move more than the market. If you already understood the
[10:39] the beta, the next uh the next important concept is to understand beta weighted delta for your portfolio. In order to understand it in a simple way, you can understand it in a simple way, you can ask the following question. If uh spy,
[10:54] ask the following question. If uh spy, which is S&P 500 ETF moves by $1, how which is S&P 500 ETF moves by $1, how much does my old portfolio makes or much does my old portfolio makes or lose? So beta waiting is the ability to
[11:07] compare all the positions you hold in your portfolio. So you can compare apples to apples. You don't compare like apples to oranges because every single name in your portfolio has different beta. So you cannot add the positions in
[11:22] your portfolio to understand your market direction, market exposition. You need to to have common metric to be able to make that comparison and uh the beta
[11:34] weighted delta is fantastic solution for that because it restates every position's delta in your selected benchmark terms. So you whole
[11:46] portfolio's market exposure become one single number you can manage and you can calculate and you can neutralize. And the most simplified way to normalize delta across different betas prices and volatility is just calculate your delta
[12:04] volatility is just calculate your delta times of every position you hold. And here we have a more visual example to explain this concept. So your portfolio can look neutral uh and still be long if you don't understand your betas and beta
[12:19] weighted. And I used as an example a technology ETF QQQ and imagine you have technology ETF QQQ and imagine you have 50 50 positions in QQQ 50 50 shares and
[12:31] you hold in your portfolio also utility uh ETF let's say you are short this ETF uh ETF let's say you are short this ETF you are short 50 shares so if you add uh you are short 50 shares so if you add uh 50 and minus 50 your total pure delta
[12:47] 50 and minus 50 your total pure delta will be zero So you can think that wow you built a market neutral portfolio which is not dependent on market direction but it's very far away from true because you need to include beta of
[13:03] every single name you hold and if you multiply QQQ delta by QQQ beta which is about 1.6 you have your beta weighted delta which is plus 80. And if you do
[13:17] the same the same equation with XLU which is defensive utility CTF you will see that your beta weighted delta is only minus 15. So if you add your beta
[13:30] weighted deltas you see that your total portfolio beta weighted delta is plus 65 portfolio beta weighted delta is plus 65 which means you are still strongly long
[13:42] the market. So if market will go down, your portfolio won't be in neutral. Your portfolio will go down. >> Roman, this uh is very interesting, but
[13:54] I'm wondering how do I keep track of this myself in my portfolio? You know, I don't have time to calculate all these deltas and deltas and look it up, you know, how how do I do it in practical terms?
[14:08] So in practical terms every uh every brokerage should it doesn't matter if it's interactive broker or if it's tasty trade it shows you your beta weighted trade it shows you your beta weighted delta exposition as one of default
[14:23] metrics. Unfortunately most people never look at it but it's the most important your portfolio. >> Okay. So we all need now to go to our broker platform and find the beta weighted delta. And then I guess this
[14:38] will tell that okay maybe my portfolio has a very positive beta weighted delta has a very positive beta weighted delta or a negative beta weighted deltas and I need to adjust that. Can you give us some kind of an overview of what type of
[14:52] strategies or trading styles can we then use? what are our tools to to bring the use? what are our tools to to bring the beta weighted delta to around zero? >> Sure. So, every time I place any trade, I look at uh let's say tasty trade and
[15:11] every time we place any trade, we need to check what's the beta weighted delta impact on the portfolio of that trade. Let's say I would like to sell one naked
[15:24] put. So I'm selling one naked put in June expiration and here in the bottom of the screen I can see all the metrics of the trade how what's the impact on my
[15:36] portfolio and here I can see beta weighted delta and you can see that weighted delta and you can see that adding short spy put to your portfolio adding short spy put to your portfolio has impact in beta weighted delta of 28.
[15:52] has impact in beta weighted delta of 28. So it means that in market terms if you sell this short put it's equival equivalent uh to being uh 28 shares of y
[16:05] in your portfolio >> and this functionality or seeing beta weighted delta should be on practically speaking all broker platform isn't that >> exactly because that's the most important number you need to watch when
[16:19] you creating and managing portfolio >> one question before we go on because you say you cannot know direction or guess direction and and personally myself as I've said many times on these interviews I don't have an edge in predicting the
[16:34] market direction but many people actually either believe they have some ability to to predict the market direction or they want to be generally a little bullish because the market does tend to drift up over time. Is there
[16:50] anything wrong in let's say composing your portfolio to be let's say have a small positive beta beta delta instead of zero? I don't see anything wrong with that. Still I also place a lot of directional trades but in order to make
[17:05] the portfolio ne neutral I still place different trades that neutralize uh direction. So that way if market goes down strongly my portfolio is more
[17:18] bulletproof and it's it makes just less bullet and more successful. >> Very quickly what are your go-to strategies to make your portfolio more bullish or more bearish or to stay neutral? What are
[17:32] your kind of goto basket of strategies that you very quickly go to? So I'm product indifferent and I'm strategy indifferent. In my personal portfolio and in hedge fund we use all range of strategies starting from uh
[17:47] strangles, iron condors, a lot of calendars, spreads, jade lizards and every every single strategy needs to complement your portfolio in correct
[17:59] complement your portfolio in correct way. So strategy itself doesn't matter as much as how it complements how it benefits your whole portfolio. So you never start with a strategy. You always start with the portfolio and see where
[18:15] is your portfolio missing some some benefits some edges and you use strategy as a puzzle to fit into your specific portfolio. Sorry for interrupting the interview, but I would like to spend 40 seconds to recommend a fantastic tool
[18:31] for options traders. It is Option Strat. You may have noticed that we use Option Strat often here on Theta Profits. And to be honest, it would be hard for me to do my options trade without Option Strat. I love how I
[18:47] trade without Option Strat. I love how I can visualize my trades in option strat, see how they will develop over time, and even share my trades with others. There are numerous other functions such as the options flow, telling where the big
[19:01] money and options trades is flowing right now. This is a recommended tool. Check out the affiliate link in the description. So, let's be more practical now and let's say I have an options trading account of, shall we say,
[19:16] $50,000. You have convinced me I should actually go into this market neutral portfolio direction with my trading right now. I have $50,000 in cash in my trading account. How you would you start? How
[19:33] you approach this? What type of strategies might you might you include, etc. Sure. So I like to start with uh target um data per day. Uh so always thinking how much how much data per day I would like
[19:50] much how much data per day I would like to earn. And for this exercise we can build a very simple market neutral portfolio which gives us $100 of data decay every single day. So no matter where market goes, no matter when if S&P
[20:07] goes down or or goes up, we can construct the portfolio. So it gives us construct the portfolio. So it gives us very consistent uh data decay of $100 uh per day using very wide range of different strategies and different
[20:23] different assets. So we will walk through it then trade by trade and these are examples trade but they are real trades that give you this they are real trades that give you this 100 ft decay per day in total. Right? Of
[20:37] course, this is like very similar approach we are using in in hedge fund to build neutral portfolio to achieve target data per day and I can quickly go strategy by strategy and there are not recommendation there are absolutely
[20:52] random strategies but just to show you general concept that strategy doesn't matter but when you combine it in the right way you can create bulletproof portfolio which gives you like TA dividend every single today no matter
[21:07] dividend every single today no matter where market is going. So first trade I where market is going. So first trade I would like to start is IWM Russell 2000 would like to start is IWM Russell 2000 and uh in Russell 2000 I can do basic uh
[21:19] and uh in Russell 2000 I can do basic uh basic strangle trade uh which is sell uh basic strangle trade uh which is sell uh let's sell 275
[21:34] call option. Sorry, let's sell it. And we created very classic very classic we created very classic very classic strangle. And this triangle has negative strangle. And this triangle has negative awaited delta of minus5 because the the
[21:48] call call site is a little bit closer to at the money than the put side. And it at the money than the put side. And it gives us it gives us $90 gives us it gives us $90 data decay every single day. and it uses
[22:01] data decay every single day. and it uses about 400 four $4,000 of buying power. So, we are adding this trade as a foundation of our portfolio. Next trade foundation of our portfolio. Next trade uh I can do is Adobe. Adobe went crashed
[22:15] crashed hard after the the earnings. Looks like market doesn't like this stock at the current moment. So I would like to start with call short call about
[22:27] about $230. This short call gives us fantastic This short call gives us fantastic minus7 beta weighted deltas. It gives minus7 beta weighted deltas. It gives $13 every single day of the decay and it
[22:41] has about 81% probability of profit which is very high and it consumes about which is very high and it consumes about $8,000 of buying power. Next trade here to neutralize a little bit our portfolio to to balance it correctly would be for
[22:57] to to balance it correctly would be for instance Microsoft. Microsoft is crashed instance Microsoft. Microsoft is crashed crashed hard. It has very good IV rank. Side note, we never sell options when IV rank is low. Here we have IV rank 63
[23:12] which means premiums are very juicy in Microsoft right now. So I would like to Microsoft right now. So I would like to go with uh 390 at the money short put and this short put gives us positive data decay of $20 per day. It has 71
[23:29] probability of profit. It gives us give better weighted delta to our portfolio and it's very heavy in terms of buying power usage but looking at my fundamental test is in in Microsoft I'm I'm very confident with that uh trade
[23:43] after several roles I think we can we can manage it very easily. Next one I would like to be more creative and I would like to go with a bit which is uh would like to go with a bit which is uh bitcoin ETF but I'm not I'm not long
[23:58] bitcoin ETF but I'm not I'm not long bitcoins at the moment so I can go with bitcoins at the moment so I can go with some creative strategy which is reverse some creative strategy which is reverse jade lizard and to create reverse jade
[24:10] lizard is just the opposite of classical classic jade lizard I go with buying 35 classic jade lizard I go with buying 35 5 put, selling 36 put and selling 39
[24:23] 5 put, selling 36 put and selling 39 uh call. And what's fantastic about this strategy, it has absolutely zero risks to the downside. So even if Bitcoin will to the downside. So even if Bitcoin will go to zero tomorrow, we never lose
[24:37] anything. We have this credit collected which is $10 and we absolutely eliminated downside risk from the trade. It gives us minus uh minus um
[24:51] 98 beta weighted delta positive data decay of $2.6 decay of $2.6 and consumes only 1,000 uh 1,000 uh buying power and it's very high probability trade because it has
[25:05] probability trade because it has probability of profit of 72%. Next I see a big premium in uranium market. So this is why instead of continuing with stocks I would choose uranium. I would go with a very
[25:21] aggressive trade which is short straddle. Short straddle is very aggressive trade but because of IV rank 67 the premiums here are extremely juicy. Very very rich premiums in Ranium. Right now we are collecting
[25:37] Ranium. Right now we are collecting almost $600 for a straddle which hedges almost $600 for a straddle which hedges a move of $6 in any direction which is a move of $6 in any direction which is very good if you manage it early. So
[25:50] here you can see how wide short strangle can be in uranium right now and it gives very good decay of $9. It consumes only $1,000 in buying power and the weighted delta of that trade is minus1.45.
[26:07] delta of that trade is minus1.45. The next trade will be oil. I would not use futures for the small portfolio. I just use ETF. It's actually fund uh USO
[26:19] which is which is one of the most liquid crude oil ETFs. And here I would go with crude oil ETFs. And here I would go with with naked coal. short naked call 135.
[26:31] We just we just received a news that Trump is going to sign uh deal Iran. So Trump is going to sign uh deal Iran. So we expect the crude oil to go down as the straight of hormos will open. I think that's perfectly safe trade. It
[26:46] has 85% probability of profit. It gives us a very high 10% uh 10 $10 uh data per us a very high 10% uh 10 $10 uh data per day and it consumes about 4,000 buying
[26:59] day and it consumes about 4,000 buying power. The next trade will be silver. In silver, we have 31 IV rank which is okay. And I would buy 61 put and sell
[27:12] 260.5 puts to create one of my favorite strategies which is ratio spread. Very high probability trade. 74% probability high probability trade. 74% probability of profit beta per day is $4. It uses
[27:27] of profit beta per day is $4. It uses $3,000 in buying power. The next trade will be Broadcom. As you can see after earnings the stock As you can see after earnings the stock crashed so hard but even after earnings
[27:41] crashed so hard but even after earnings IV crash it still has good tradable IV rank of 33. So this is why I'm going with iron condor here. I will buy uh 330
[27:53] put 430 call and I will sell uh options behind call and I will sell uh options behind to limit my risk. And as you can see um
[28:06] sorry it should be opposite. Yeah. Uh we have very very wide iron Yeah. Uh we have very very wide iron condor which gives us 70% of profit. We collect $222 for that iron condor and we use only
[28:21] $700 in buying power. So it's fantastic trade using still high IV rank in Broadcom. Next I would go with uh semiconductors. I will stay with semiconductors. I will stay with semiconductors but I will go with SMH
[28:35] semiconductors but I will go with SMH ETF. And in SMH ETF I can do very creative trade which is unbalanced iron condor. I would propose to buy call here
[28:49] condor. I would propose to buy call here at 700 to limit upside risk. Then I would say 652 call which creates very wide call
[29:01] call which creates very wide call spread. I will finance it with uh 620 spread. I will finance it with uh 620 at the money put and I will buy uh 615 put here. So look what we created. It's unbalanced iron condor which has zero
[29:18] unbalanced iron condor which has zero absolutely zero downside risk. No matter absolutely zero downside risk. No matter how hard conductors will crash we every how hard conductors will crash we every time we earn $1,000 here. But the total
[29:30] time we earn $1,000 here. But the total credit we collect is $1,500 credit we collect is $1,500 or maximum risks is about $3,000. Buying or maximum risks is about $3,000. Buying power in US $3,000 and decay is $8 per
[29:43] power in US $3,000 and decay is $8 per day. And the last trade is uh GLD. Gold day. And the last trade is uh GLD. Gold still has a very nice IV rank of 39 which gives us fantastic opportunity to sell some premium here. sell some very
[29:59] juicy premium here and high probability. So I would go with longer direction to have some better diversification across different expiration. So I would choose instead of July July expiration I would choose August expiration here which is
[30:15] choose August expiration here which is 767 uh days till expiration and I'm 767 uh days till expiration and I'm selling uh 370 put here because I'm a little bit bullish on gold and I'm uh selling uh
[30:29] 400 uh 410 call option which gives us a fantastic premium of 1,500 premium of 1,500 almost $1,600.
[30:43] almost $1,600. Uh TADK is $20. Probability of profit if Uh TADK is $20. Probability of profit if is uh 57% and buying power usage is less than $1,000 uh dollars. >> Wow, that was uh that was an impressive
[30:57] setup of a lot of different trades. So, how does this look when we look at all these together, Roman? >> Exactly. So there are absolutely random uh random trades. Of course, every has some uh testes and every trade has some
[31:13] unique value added to our portfolio. Uh but I prepared a quick table to calculate calculate all the metrics of the portfolio we constructed. So here the portfolio we constructed. So here you can see list of all 10 trades we did
[31:27] and you can see the summary that for all the trades we collect total credit which is cash received to our account. We we we don't have any debit trade. So we
[31:40] we don't have any debit trade. So we didn't paid anything for any trade. We collected the credit for every single trade and the total premium total credit collected which increase cash value of all or account is almost $7,000
[31:55] all or account is almost $7,000 uh buying power reduction which is very using any portfolio margin if we just use classic recti margin and the most conservative scenario is that broker freezes buying power of $46,000
[32:13] but Looks look at the last columns here. If we add all the beta deltas of the If we add all the beta deltas of the trades we created, we are at minus0.06,
[32:31] So what does it means? It means that our portfolio is absolutely absolutely independent of market direction. So it doesn't matter where the S&P will go doesn't matter where the S&P will go tomorrow. Will it go down or will it go
[32:46] up? It absolutely doesn't matter because we extracted and eliminated this market direction from our portfolio. And look at the last column. This is the summary at the last column. This is the summary of theta decay of all the trades. And uh
[33:01] of theta decay of all the trades. And uh total daily TA decay we achieved is total daily TA decay we achieved is $1157.
[33:14] the market is going, every single day our portfolio will increase value or our portfolio will increase value or give us on average $11 every single day during duration of that trade. I have one question, Roman,
[33:31] because I noticed that Microsoft is representing almost all of Microsoft is representing almost all of your positive beta weighted delta 27 here. Isn't that risky in itself where where you put concentrate so much of the
[33:47] positive delta on one of your 10 different trades? >> Yeah, that's a very good uh question. So in real portfolio I aim to be a little bit more diversificite to avoid any single position to to to consume such
[34:03] big percentage of buying power. But as this is absolutely random portfolios I want to show that even without thinking too much without overthinking just collecting absolutely random trades you can build something really institutional
[34:17] level that achieves your financial goal. And one other question because you say that this doesn't matter where the market now will move but isn't it so that if the market makes a big jump up or falls down all these numbers will
[34:32] change. So your beta weighted delta will change if the market moves one or the other direction. >> So beta weighted delta is uh minus 0 >> So beta weighted delta is uh minus 0 minus 06 at the moment we created it. So
[34:47] beta weighted delta is not like constant. It will not stay at this number forever. It can be that if volatility changes and if uh market makes very rapid moves in any of the direction better weighted delta can also
[35:03] change over time. But we have tools we manage this beta weighted delta by rolling option by neutralizing delta to keep to keep the delta as close to zero all the time. All right, Roman. So, we
[35:17] have constructed a portfolio and before we move on, just let's just look at a summary of the portfolio that we have uh constructed. >> Let's have a look. So, buying power we used to get this this trait is $46,000.
[35:40] use any margin here. What's a very nice benefit is if we use a broker for instance interactive brokers which pays instance interactive brokers which pays interest on cash and we increase cash
[35:53] position in our account by selling premium we will get additional interest premium we will get additional interest on our cash about $500 per year using today's interest interest rates uh interactive brokers pays this
[36:07] is a bonus uh bonus uh which is I think good good to good to include include uh number of open positions. So usually my portfolio holds about 150 positions
[36:19] because I have a little bit larger portfolio. But here we constructed Delta Natural portfolio with only 10 positions and our average probability of profit is 66% average days till expiration is about 30
[36:34] days. So if we summarize all the credit corrected in collected in the first corrected in collected in the first cycle, it will give us 6,864
[36:49] zero as possible. So we are independent on market direction. But let's look what on market direction. But let's look what happened if we annualize that numbers. happened if we annualize that numbers. So this is only one cycle we did. But
[37:03] So this is only one cycle we did. But during the year during the 365 days of during the year during the 365 days of the year we can have about 10 up to 11 the year we can have about 10 up to 11 cycles like that. So if we multiply the
[37:15] net credit collected by 11 cycles it gives us opportunity to collect gives us opportunity to collect annualized credit of $75,000 uh dollar. And of course as you know we shouldn't use all buying power
[37:30] shouldn't use all buying power available. I made a very conservative assumption that we use only 20% of our buying power and using only 20% of our buying power this gives us annualized return on capital about 329
[37:48] return on capital about 329 uh%. So it's almost 10 times of the current risk-free rate. And as you can see there this is not like crazy number like thousand% growth in the portfolio. It's absolutely realistic and achievable
[38:04] number which which you can like achieve using maths I just show. >> But Roman this is as I understand it also assuming that all trades are winners throughout the year and that's is that a realistic assumption?
[38:18] >> Yeah that's a very correct uh question. So of course you won't have the case that all trades are winners because you have probability of profit 60 66 uh% in reality it can be a little bit higher if implied volatility overstates realized
[38:34] volatility but you need to be prepared that you will have also some kind of roles you would need to roll the trades you manage the trades early so in you manage the trades early so in reality you will never keep 100% of the
[38:47] data but this is absolutely like realistic assumption it's based on like management how good you can manage that trades and how big percentage of buying portfolio. >> Okay. So we have constructed an example
[39:03] pro portfolio but as as you pointed out the beta weighted delta is not a constant. The market changes we need to adjust maybe roll positions maybe close adjust maybe roll positions maybe close some positions but your aim is always to
[39:16] keep a better weighted delta of your portfolio at around zero. So could you walk us through your own personal process of how you manage your own portfolio day by day? >> Sure. So my target is to bring the
[39:29] weighted delta as close to zero as possible to eliminate the market direction because as I said at the beginning even with almost 20 years of experience I am not able to predict my market direction that I believe nobody
[39:42] can can can do it. So if we cannot uh if we cannot predict the market direction why why focus on things we cannot predict. I have the mantra that you should control what you can control and you can control your buying power usage.
[39:56] You can control your data. You can control your portfolio metrics. I mentioned before all management daily management process should focus on the metrics you can control. Because of that, I try to roll trades to neutralize
[40:11] that, I try to roll trades to neutralize my delta to recenter my trades. If delta becomes too high, there are a lot of a lot of techniques how to manage it. We can discuss in maybe next interviews. But this is very big topic and fantastic
[40:23] But this is very big topic and fantastic topic to learn. But let's just say that your market has dropped. Your beta weighted delta is now clearly negative. You see you need to take some action. What would be your let's say top two or
[40:38] three alternatives that you would consider to get it back from minus up to zero. >> Sure. So I have a lot of tools I can use. For instance, I use different types of techniques. The most easy way to
[40:53] neutralize portfolio delta is by using static delta which has achieved using futures. And let me show you quickly on the tasted le platform. I like using
[41:05] mees futures. You can see if you go short that futures it gives you short that futures it gives you immediately minus 51 delta or if you go long futures it gives you 50 long delta deltas to your portfolio. So I never use
[41:21] futures to speculate to scalp some profit but I use it as a very capital efficient hedging tool for several days or several hours to bring my portfolio
[41:33] beta weighted delta to exactly the place I I need. >> How much do you allow your beta weighted portfolio delta to wander in negative or plus direction before you take action? So it actually really depends on my
[41:49] personal assumption. As I said, I don't try to predict the market but as a human we always have some assumption. So if I feel that market is extremely stretch feel that market is extremely stretch stretch to the upside uh I a little bit
[42:04] allow allow myself to have a little bit negative beta weighted delta which will benefit significantly from every single correction. And the opposite is when a correction. And the opposite is when a market is very very oversold. I I I
[42:19] target to have a little bit positive positive delta because it's very natural that sooner or later the market will recover and sitive delta will add a little bit boost to the portfolio. >> But during the last few months or weeks
[42:34] we have seen some pretty big moves in the market both down and later recovery the market both down and later recovery going fast up. How has this way of looking at the market neutral portfolio worked in this time period?
[42:51] >> Yes, so you are right. The last month were absolutely crazy. We experienced a lot of volatility in the market and it required a little bit management more than more than usual a little bit more rolling options a little bit more
[43:05] naturalizing. So it's it was very busy period. uh but ultimately it's it's successful for short volatility portfolios. >> Now I would like to ask you about the risks of this approach or this way of
[43:21] trading. What is the worst that can happen with this approach? >> The worst that can happen is blackstoneone events because as you as you realized we are selling premium. When we are selling premium we are short
[43:35] Vega. So any rapid increase in volatility on the market in VIX is very painful for the portfolio because it creates a VIX volatility squeeze. This is why when we have larger more complex portfolios, we also need to think about
[43:50] portfolios, we also need to think about hedging and black swan hedges and proper buying pop buying power allocation which can absorb volatility squeeze. But volatility squeezes are absolutely natural thing in in in the portfolio. I
[44:05] I show in my YouTube channel how the portfolio behaves during the volatility squeeze and what's the correct mindset, how to go through it without too much pain. >> I always ask my guests to place their
[44:19] strategy when in this case not strategy but type of or style of trading on a risk profile scale where one is very low risk and 10 is very high risk. Where would you put your market neutral trading style where you are kind of
[44:35] neutral to what are the best strategies? Uh how would you place it on a risk profile scale like that? >> Yeah. So it's a good good question. Um it's it very depends on what level of
[44:48] diversification hedges we are using because as you can see it's much much less risky than any strategy presented on on the channel I saw because we are not using any single strategy because we are strongly diversified across multiple
[45:04] different underlines which has very low correlation to each other. uh and we are diversified across uh days to expiration and we are diversified across different strategies. So we use about five different layers of diversification
[45:19] which significantly increased the safety of the portfolio and significantly reduces the volatility of the portfolio. But as I mentioned before we are still short Vega. So all positions are sensitive to black swan events and fix
[45:34] increases. Uh so I would put it somewhere in the middle. Everything depends how good you you can hedge it and how good you can manage it during the most stressful market periods. >> So this is your no shiny objects uh
[45:49] >> So this is your no shiny objects uh options strategy options way of uh way of trading. What have been your trading results with this approach? I'm sharing my trading results in my
[46:01] YouTube channel and I believe I'm the only like one who are doing it absolutely openly and transparently. So I'm not sharing any back test. I'm not sharing any Excel spreadsheet. I share my portfolio live exactly as it is and I
[46:17] focus on mistakes because I do so many mistakes even with so many years of experience. uh I do so many mistakes and I think it's very beneficial even from psychological point of view for traders for investors to understand that you are
[46:31] not alone here. So even with so many years of experience you will be doing very stupid mistakes and that mistakes will be painful and it's not as as
[46:43] amazing as cherrypicked back tests or Excel spreadsheets some traders show. experience a lot of pain, a lot of volatility in your portfolio and I'm showing it everything as it is, sharing live statements and everything live on
[46:59] YouTube channel. >> What exactly were your results in let's >> What exactly were your results in let's say 2025 and so far in 2026? >> So I have multiple years of history. So in 2023
[47:14] in 2023 we achieved about 70 77% we achieved about 70 77% increase in the portfolio. In 2024 it increase in the portfolio. In 2024 it will it was also something about 70 72%
[47:26] will it was also something about 70 72% if I remember correctly. uh 2025 was very difficult because of Iran war my my strong exposition to gold to other strong exposition to gold to other metals and 2025 resulted down about
[47:39] metals and 2025 resulted down about minus minus 2%. But 2026 we recover recover strongly and I believe the session is not not started yet but Iran and Trump just made the agreement which will which will result in significant
[47:54] significant recovery in many positions we have in the portfolio and I will be showing it live on YouTube soon. >> So how much are you up 26 so far? don't have the numbers handy right now. >> Okay, let's sum up. How will you sum up
[48:11] what we have been through? Particularly what would be your two or three most important takeaways for the audience to remember from this interview. >> So the most important takeaway is to not search for any secret strategy about new
[48:29] shiny object because there is not such thing like that. Just focus on the basics. just focus on selling premium eliminating market direction not trying to predict the market focus on basic math and it work and I'm sure you can be
[48:44] successful with that >> so if I want to change to this trading >> so if I want to change to this trading style what are the first two or three things I should do today and what should I immediately stop doing
[48:58] >> so first is to understand what's your market exposure because most traders even never look at beta weighted delta they don't understand what's the beta of of the positions so I think that's very important to go through all of your
[49:11] positions and understand how much concentrate concentrated the positions are how much sensitive to the market movement what's the beta of every single position what's the correlation with S&P 500 and then what's the total portfolio
[49:26] beta weighted delta if it's in check if your buying power usage is in check are you able to handle uh volatility squeeze what's your target TDK just basic portfolio metrics to have it in check and starting from them you can view
[49:42] every single trade as a puzzle which benefits your portfolio. So once you have all the metrics handy and in check, you know exactly what's the weak points of your portfolio and every strategy. You don't look uh at it as a strategy as
[49:58] You don't look uh at it as a strategy as a some fancy flyagonal strategy, but you look at it how exactly this specific strategy, this specific trade, how exactly it will benefit my personal portfolio metrics and what's the value
[50:13] added to my personal specific portfolio at the specific time. Roman, what would be good resources to learn more both about options trading as such but this strategy and or this way of trading in particular?
[50:28] >> Sure. So I provide almost all the knowledge for free because that this is my my absolute passion. I started to write a blog options options.com and I post a lot of academic research and this description some guides of of
[50:44] the strategies I use. There are a lot of interesting articles. My goal is to make it ultimate s source of knowledge and articles and free education for everyone. So, so you can simply go to the blog and look what topics are
[51:00] interesting for you. Would you have a couple of good books on options trading that you would like to recommend to our audience? audience? >> Uh, sure. So, I think the most trendy
[51:13] and useful book is by Julia Spina and Tom Sosno from Trade Tasty Trade. If I remember correctly, the title, it's unlucky investors guide to options trading. And I strongly recommend it to everyone who would like to manage
[51:28] options portfolio. And I would as always also recommend to watch some of the interviews here on Theta Profits even the shiny object in interviews because
[51:40] the good thing as an option trader is to be inspired by different ways of thinking about trading and different strategies and then find your own way of trading. Thank you very much Roman for an excellent presentation of your market
[51:54] neutral portfolio management style. This was very inspiring. Thank you. was very inspiring. Thank you. >> Thank you so much.