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The Skinny on Options: Abstract Applications

The Product of Returns

The Skinny on Options: Abstract Applications

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

In today’s Skinny, we are reminded of the simple fact that returns are multiplicative over time, not additive over time. Specifically, this means they follow a Geometric Return Sequence (something we talked about way back in the very beginning). This is important because it highlights several important aspects of our portfolio returns.

First, there is no reset button - there’s always a running tally. Second, the tastytrade philosophy of smaller, more consistent wins over time can produce significantly positive results. And third, the more directional you are with your portfolio delta, the more susceptible you are to larger portfolio drawdowns, which can be difficult to recover from.

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