The Final Hour Experiement
By Ernie Varitimos
April 14, 2022
0:00 / 21:10
The Final Hour Experiement

3, 2, 1.

Alright, here we are. How are you doing friends? Ernie here. And this is the zero days to expiration podcast. After about a two week hiatus to conduct an experiment. We conducted an experiment. When I say we, it's not just me saying we it's my, my posse, my service. Yeah, we conducted an experiment with zero days to expiration.

Now, if you've been following this podcast for a while, then you know that zero days to expiration refers to trading options on the last day of expiration for the. Whether it's the SPX, the index or the E-mini futures. We trade the very last day because of the extra ordinary edge that you get from premium decay.

We also inject our own version of technical analysis, looking at the market structure. Volume profile. We don't use any of that. Hocus Pocus, magical technical analysis, mumbo jumbo, or numerology, or any of those other things. We only use things that are real in the real world, real world, the actual trades that were traded, conducted at price levels.

And from that, we can determine the market structure and that begets. We can ascertain, well, why am I using all these words come on or any, what am I trying to say? I'm trying to say that we can really. Price behavior on how it actually enters that market structure and be able to get a good handle on and develop scenarios on where price is likely to go.

And from that we can then all, well, wait, we also look at things like open interest in the options chain and the volume profile itself and where those volume nodes are and where the volume Wells or the absence of volume are. Are clues that tell us where price can potentially go. Once we have that in mind, we model it with an options trade.

And this is the key right here, that options trade. We make sure that it has asymmetric properties. Asymmetric properties, so that the risk is extremely small relative to the potential profit that asymmetry. Is really what it's all about. Asymmetry gives us a positive expectancy in the long run.

The volume profile PR provides us with a high probability scenario where we're pretty sure we're pricing. Except for today, it's going in the opposite direction now, anyways, it provides us with a high probability scenario of a where price is going to go. And so we place a trade. Now, this asymmetric trade, this options trade that we do, it takes advantage of the fact that premium is decaying edits, the fastest rate of any other time.

And it's in its history and its lifetime for that contract that lasts. And we take advantage of that, that premium decay happens at an extraordinary rate. And so we put on an options, premium collection strategy using asymmetric principles or asymmetric setup so that the risk is very small, but the reward is potentially.

Gargantuan compared to the risk. What is gargantuan? Well, generally the minimum risk to reward that we will take is one to five, but generally we're looking for one to 10, one to 15, sometimes even one to 20. And, that's pretty cool considering that we have such a small time window, that we have to figure out where price is going.