Market Measures Mistake (Part 2)

Last time I discussed my first criticism of the Tasty Trade show “Market Measures” (MM): reporting of incomplete information. My second critique is an occasional mistake in tabulating the results. A good example of this is the MM episode from November 8, 2016.

MM claims taking assignment on the short put and selling a call against it improves the overall trade. Slide 5 says this increases both the overall winning percentage (from 92% to 96%) and the average P/L (from +$46 to +$53).

Pay close attention to slides 3 and 4. Slide 3 says 92% of trades were winners. The average P/L was $46 and the average length of trade was 17 days. Slide 4 says losing trades lost an average of $769 in 42 days or $682 in 64 days if rolled (assignment followed by writing of a call). Consider case 1 where a losing trade is followed by a winning trade (likely due to the 92% win rate) vs. case 2 where the losing trade is rolled.

In case 1, we have average P/L’s of -$769 (average losing trade) and +$117 (average winning trade), which sum to -$652. The average trade length is 56.8 days (based on information from slides 3 and 4).

In case 2 we have an average loss of $682 in 64 days.

So despite the fact that rolling (case 2) turned 45% of the losing trades into winners (slide 5), simply realizing the loss and putting on a subsequent trade (case 1) did better (in 10% fewer days). While they don’t give enough information to calculate the average winning and losing trades, even if the winners only averaged +$1, the losers averaged -$1,241. This is over 10 times the average winning trade: a difficult number to stomach.

Yes, the improvement in average P/L on slide 5 is good but the implication of slides 3 and 4 is equally bad. I therefore see no justification for the all-positive takeaways shown in slide 7. I also walk away wondering if the numbers add up at all and I can’t know for sure because they provided incomplete information. I have sent a follow-up e-mail asking for another response two months after my initial e-mail received none.

In summary, I enjoy the MM show and I support the Tasty Trade efforts to boost financial literacy. The sloppiness does not set a disciplined example, though. Presenting incomplete information may be okay for people trading as a hobby. It cannot be taken seriously until sufficiently rigorous for a trading business, though, which is probably just what the disclaimers aim to suggest.