 Hey, everyone. Welcome to another lesson from Navigation Trading. In this video, I want to talk to you about the debate of buying versus selling options. And we're doing this by doing a couple of back-tested studies. So this isn't a lot of my opinion of what I think is better. This is all raw data, numbers, statistics, back-tested data going back five years. So back-test number one, study number one, we are looking at SPY, so the S&P 500 Index. We utilize this because we don't want to use an individual stock where we have to take into consideration earnings announcements and dividends and those sorts of things. So we're looking at a broad-based ETF, SPY is the most liquid one out there, so that's why we're using that. Looking at five years of back-tested data, we are in this study we're going to buy both the calls and the puts. So in this study, we're not looking to get directional because obviously in a bull market, the bullish strategies would perform better. In a bear market, the bearish strategies would perform better. So we want to enter these trades as a delta-neutral strategy just to get an idea purely of the fact is buying options better or is selling options better. So we're going to buy both sides. We're looking at several different option deltas. So we're looking at the 50, 40, 30, 20 and 10. So we're going to buy both the 50 delta on the call and the put. We're going to buy the 40 delta calls and the 40 delta puts, 30 delta calls and puts, 20 and 10 and so on. We're entering the trade with 45 days to expiration or the closest to 45 days to expiration. We're going to close the trade out when it reaches a profit of 25% of the debit paid or expiration whichever comes first. So if the trade makes a profit of 25%, we're going to take that off or if it never reaches that profit target and it expires, we're obviously going to take that into consideration. And lastly, we're going to enter a new trade immediately after trade closes. So if a trade hits that 25% of profit, we're out of that trade, we're immediately going to put on a new delta-neutral trade immediately after that trade closes. Now in back test number two, we're basically going to do the exact opposite. We're still using SPY. We're still looking at five years of data. But in this case, we are going to sell both the calls and the puts using the exact same deltas of 50, 40, 30, 20 and 10, same timeframe, 45 days to expiration and same way of managing our winners. We're going to close our trades at 25% of the initial credit received or at expiration whichever comes first. And then we're going to enter a new trade immediately after a trade closes. So let's go to the options strategy back tester and take a look. So what we're looking at here, again, as I stated with SPY, we're looking at a strangle or in this case a straddle as well, but we're buying it. There's obviously no earnings because this is an ETF. We're going to open the trade normal time and book profits with gains above 25% or expiration whichever comes first. And we're going to open the next trade immediately. So as soon as one closes, we're immediately going to open a new trade. We're looking at five years of back tested data, days to expiration, 45 days or the closest to 45 days. And if we open up our settings here, I'm looking at just an example of using 10 contracts per trade. We're looking at a commission of $1 per trade because that's the amount that we can get our members at thinkorswim. Obviously, Tasty Works has no closing commissions, but we're looking at $1 to open and $1 to close. And then as mentioned, looking at the deltas of 50, 40, 30, 20 and 10, both on the calls and the puts. So go ahead and save that. As you can see, buying options in this way is a loser across the board. So if you look at the 50 delta calls and 50 delta puts, you're essentially buying a straddle. Over five years, you have a win percentage of just over 54%, which actually is a little surprising. I actually thought before I did the study that it would be a little bit lower than that. So that equates to 30 wins, 25 losses. Looking at the 40 delta calls and 40 delta puts, again, a loser over five years with a 61% winning percentage. 30 delta calls and puts, again a loser with a percent wins a little over 61%, but still not profitable. 20 delta calls and puts, over 66% loss over this period, a little over almost a 50 6% win rate, but losing proposition overall. And then the 10 deltas, same story, losing proposition with a win percentage just over 59%. So now let's look at the opposite. And to do that on the option strategy backtester, remember, we're just simply changing this from buying these options to selling. So everything else is staying exactly the same. So if I click on sell, we'll wait for this to populate. And as you can see, the first one pops up, which is the 50 delta calls and puts where we're selling the 50 and on the both the put and the call side, you can see we've got a return profit of over 100 and about 103% with a win rate of 80%. You can see we've got 52 wins, just 13 losses. So obviously very profitable trading strategy going down the line. 40 delta puts, 40 delta calls. You can see a total return of now 179%. A win rate of over 84%, giving you 64 wins and 12 losses. Going down to the 30 delta, a total return of 141%. Win rate even higher of 89.1 and 82 wins, just 10 losses. If you look at the 20 delta calls, 20 delta puts, this is really kind of the area where we, this is our wheelhouse where we really sell premium. And in this case, we're looking at 109% return, over a 90% win rate with 100 wins, 10 losses. The interesting thing about this to keep in mind is when you put on a 20 delta strangle, when you sell a 20 delta strangle, your probability of profit, when you initiate that trade, if you were to hold it all the way to expiration, when you look at your platform, you're going to see a probability of profit of about 60%. A little over 60%. You've got 20 delta probability of in the money on one side, 20 on the other side that's total of 40. You take the inverse of that. That's about a 60% probability of success. But look at the win rate. It's over 90%. There's a couple key things to understand about why that is. One, we're managing it at 25% of max profit. So we are not holding it all the way to expiration. So of course you're going to have a higher win rate. The other piece is, and I talk about this all the time, and this is why selling options versus buying is such a big factor. And that is implied volatility is overstated almost 85% of the time. So the majority of time, fear is overstated. Uncertainty is overstated. And that's why selling options works. And then you can see as you go down line, if you're selling the 10 delta calls and puts, still over 85% win rate, the profits are less, but the win rates, 131 wins, just six losses. So now if we go back to the slides and just to recap, obviously selling options significantly outperforms buying options. But the one thing I also wanted to note, because this is something that we talk about all the time at navigation trading, and that is selling options in periods of high implied volatility. In this study, no implied volatility filter was used. So we were selling options and buying options, whether implied volatility was high or low, or it didn't really matter. We were just putting on the trade no matter what, but you can still see that selling options significantly outperforms buying options. If we were selling options only in periods of high implied volatility, then the performance would have improved even further for selling options. So this is the power of using statistical data to show and prove different concepts and different trading strategies. We use the CML Backtester. There's a link down below if you want to click that and you can get the CML Backtester to do your own studies. You really owe it to yourself to do this research, to do this statistical data mining to understand the concept behind the strategies that you're trading. If you have any other studies or back tests that you would like us to do the research for, simply drop a comment down below and we will make sure that we get to that study in the future. I hope this was helpful. We'll talk to you next time.