Carter Worth, Worth Charting
Stacking the Odds to 93%: Inside a Non-Directional Income Strategy
Carter Worth has spent 35 years studying one input: price. Not earnings, not the macro story, just where a stock is trading and what the chart says about where it goes next. He came up through Value Line and Donaldson Lufkin and Jenrette, sat in a long run of major sell side seats, and became one of the more recognizable technicians still working at scale through his regular spot on CNBC Fast Money. In 2021 he left to build Worth Charting, a research boutique serving some of the largest institutional pools in the world, and then took the philosophy to its logical end with an ETF.
That fund is WRTH, the Worth Charting Options Income ETF, and it does not look like most of what gets called option income. The common versions buy options outright or sell covered calls against stock they hold. WRTH sells both sides of an option at once. That is a short strangle, cash collateralized, and it collects the premium. There is no directional call inside it. Carter is not betting a stock goes up or down. He is betting it does very little for a few weeks.
The edge comes from stacking filters. Short dated, out of the money options expire worthless something like 70 to 75 percent of the time on their own. Limit the universe to large caps, cut the biotech names, and that climbs toward 85 percent. Require the strikes to sit at least 10 percent out of the money and you are near 88. Then add the last filter: only sell the strangle in the days after a stock has made an outsized earnings move, when premium is rich and the name tends to settle into a range. Stack all four and Carter is targeting roughly a 93 percent probability that the options expire worthless. The position is really a bet that after a big gap, the stock goes quiet for 15 to 20 sessions while the fund gets paid to wait.
Brad and Carter spend real time on the part that scares people, which is what happens when a name the fund is short gaps again, on an acquisition or a shock. Carter's answer is structure. The book is cash collateralized, spread across roughly 40 equal weighted positions, so a single tail event is an event, not a wipeout. The math only works because no one line item is allowed to matter that much.
The wider argument is the one worth the listen. Carter makes the case that the rise of quant and AI validates technical analysis rather than killing it. Pattern recognition on a chart, he says, is the original version of what Jim Simons and 150 PhDs were doing at Renaissance, just at a different scale and a different price. They also get into the ETF Thunderdome, his term for a market where half of all launches never cross 25 million in assets, and how a boutique actually fights for shelf space against the giants.
If you have clients asking for income without another bet on market direction, or you just want to hear a serious chartist defend his craft against the machines, give it a listen.
Full Transcript
5,245 wordsMachine transcribed from Brad Roth's conversation with Carter Worth, Worth Charting, with speakers identified automatically. Timestamps link to that moment on YouTube. Lightly cleaned, otherwise unedited.
Welcome to Behind the Ticker, the podcast where we go beyond the symbol and into the strategy. I'm Brad Roth, founder and chief investment officer at Thor Funds. And in each episode, I sit down with ETF managers, CIOs, and industry leaders to break down how these funds are actually built, how they behave in real markets, and how advisors use them in real portfolios. Most people just see a ticker symbol, but we know much more goes on behind the ticker.
Hey Carter, welcome to the show. Thank you so much.
So why don't we give everybody a bit about your background before we get started? You started as a fundamental analyst at ValueLine and you've had a long 35-year career on Wall Street. How did you, how did that journey really unfold and for you eventually launching Worth Charting in 2021?
The simple answer, and it's one I use, whenever this kind of question comes up, it could be a room of 400 people and a big presentation over lunch or one-on-one with the portfolio manager that's new to me and I, to him or her. The answer is that I have no natural, God-given talents to speak of. And this is the simple answer, meaning this is elemental. Yes, if I could swing the golf club like Tiger Woods, I would have done that. If I could sing like Mick Jagger, I would have done that. And if I could act like Tom Hanks, I would have done that. But having grown up in New York City, the cottage industry here is finance, just as they make cars in Detroit,
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Movies in Hollywood and corn in Iowa. You look around and you're like, wow, people make outsized livings with modest abilities. So I went down to Wall Street and I entered an ad in the New York Times and 40 people showed up for this analyst, junior analyst position at Value Line and a couple math tests, an essay on the U.S. economy for an hour and a half. And I was the one that got picked. That was a good break. But anyway, from there, I did a year of that and I got a real break, which was I was hired by the strategist. His name was Eric Miller. He was the CIO, Chief Investment Officer, Head of the Investment Policy Committee, Stocks Policy Committee at Donaldson, Lufkin and Genret.
So that's really the highest punching boutique equity research firm to ever exist in terms of weighted II rankings and a real growth engine that in fact also had the very clever decision to sell themselves in March of 2000. the dot-com peak for probably three plus times buck to credit Swiss. But anyway, it was there as a strategist doing fundamental work that I started to learn about and incorporate the study of prices, not just the study of what respectively would be input for prices and then abandon all of those fundamentals. And I have stuck with price and price only ever since.
Yeah. we're going to talk about kind of your background and technicals and kind of that transition. But before we get into that, I always like to ask people, what do you like to do when you're not behind the desk or in your case, looking at charts?
Well, I suppose I'm like everybody else. I'd be watching the Knicks. I, I follow sports. I play sports myself, uh, 10 is a little golf. Um, I do happen to have four children. Some of them are still quite young on, on the way to college and so forth. So that consumes and a dog and a wife that consumes a lot of time, but, uh, just, uh, what's interesting is what was my hobby became my career. And so there's the answer. I was, um, looking at charts when, uh, no one was interested, in my opinion on them, um, and so forth. And it's really not so much charts, but at the concept and one either accepts this or not, that there's wisdom in price. Right. And that is the main thing.
A lot of people just don't, right. They don't believe that, but the government, even the U S government, right. They include stock prices as one of the inputs and the leading indicator index. And it's all sort of come around to that, but it's the behavior science, the study of money flow, why, um, and how, uh, certain things behave the way they do.
So you're a known technical analyst, like I just said, and specifically, around the 150 day moving average has become something of a, of a signature in a market that's increasingly dominated by quant models. And now we're talking about AI, what's the case for technicals in 2026?
Well, that's what makes the case, right? Meaning. So if you look at what quant is, let's talk about Jim Simons, right? Renaissance. What was he doing? He's a great mathematician with 150 PhDs. He is with us, of course, but he was in the business of studying patterns, whether you're doing it at that level, they're looking for patterns on the income statement or patterns, the balance sheet, or in this case, just price patterns, right? And, simple, uh, endless iterations as we would all want to know. If a stock goes up for seven days in a row and on the eighth days down more than 2%, what happens on the ninth day? you could run thousands at that, meaning that that's what quant is. Quant is pattern recognition and charting is
Just an old fashioned version of it. So while there might be a thought in the marketplace and in academia that, um, what, uh, has come along the increasing reliance on quantitative analysis would undermine technicals. What it does is actually bolster it.
So you're a regular on fast money on CNBC. We've had Katie Stockton on the show who I've seen pop up in also a known technician as well. How is being in front of that audience shape how you kind of communicate ideas and how you eventually, I want to talk about worth charting, but how is being a regular there and being in front of an audience, like shape, how you communicate your ideas and your investment thesis?
It's funny. I, that's sort of the one thing, when I said I didn't have any natural God given talents to speak of, uh, that's about the one thing that I was a good at, meaning middling student and all the, but whenever it came to debate, I would win the debates, the public speaking contest. I would win those, uh, I'd get the lead in the play in sixth grade. And so the one thing that, uh, that is, is just, um, sort of presenting yourself or not even being yourself and conveying ideas in a cogent sort of simple, but, uh, uh, sort of approachable manner. And so it's just more of the same. It's, uh, it hasn't shaped me. It's just been a continuation
Of probably the only thing that I was, uh, very fast Latin and better than, than most.
So let's talk about worth charting a little bit. You founded the firm in 2021. It's an institutional research, uh, boutique serving largest capital pools in North America, Europe, and Asia. So can you walk us through what worth charting does and really who you're serving and how?
Right. So just if in the simplest turn, I'm a sell side analyst, right? And a sell side analyst could work for a large firm as I have any different firms work for a boutique work for themselves. Right. And so a sell side analyst that covers software has to cover Adobe and Microsoft and Oracle or trucking company or soda water. You could be the Pepsi Coke analyst. In my case, it's technicals, right? It's the study of price action. And so I've had that role in the institutional clients or the same clients, uh, over the past 30 years. Right. So if you could think of a, uh, brand name mutual fund company that might come to mind or a client like that, their clients of worth charting, meaning we provide research at the individual stock level or commodity level or index
Level or thematic pieces were to be overweight and underweight based on our work could be completely wrong, but people pay for our insights. Um, and that's a simple, uh, I guess, just like any sales analyst, it's just that it's under my marquee versus, uh, doing it on behalf of another firm.
So let's get into WRTH. It's the worth charting options income ETF. You guys launched this, uh, April 28th of this year. So fairly due on NYSE it's actively managed. Um, and then also sub advised by title at a high level. What is this fund and what is it actually doing at a high level? It is an
Income, um, generating fund for one's conservative capital, meaning a lot of people out there trying to chase fans of the day, which you can make a lot of money on, right? You can be long precious metals, be short press metals or oil, or in this case, semiconductors. We're not sort of interested in any of that. This is a, uh, modeled to be a very sort of low ebb, um, income generating low drawdown, um, low volatility, um, endeavor, but the, uh, I can get into the details of it if that's productive
Or. Yeah. Well, I'm going to, so let's, let's get into some of the details. So most option income ETFs are buying options or they're selling covered calls that generate some sort of yield. You're doing something pretty different. You're selling both sides, calls and puts on the same stock at the same time. So could you walk us through that strategy in plain English for the advisors that are
Watching this? Right. So, um, the, if you look at options, who buys an option, right? And who buys an out of the money option, which is what we were trafficking in. So let's, for hypothetical, take a hundred dollar stock. What we do is rather than buying options, we're selling them. We are selling both the calls, let's say the one 10 calls on that a hundred dollar stock. And we're selling the 90 puts on that $100 stock always near dated short term. So typically 20 sessions or less. And so those two criteria right there are important. And there are a couple others, but it's out of the money. That's the first thing. And it's with very little time left. So we're anticipating and to profit from decay, but maybe I could walk through why that is and go to the other, um, criteria. If you just
Look at all, um, all short term out of the money options could be out of the money by dollar, right? A hundred dollar stock. And it's the one-on-one calls or the 99 puts. What are the odds that, that those out of the money short term options expire worthless? If you look at millions of trials, get data from Bloomberg or FAQSA, whatever you want. Basically you're talking about 70 to 75% of all of those options expire worthless. Now people say, well, those are very nice odds that one should then sell those, not buy them. But the risk of course is that you have a huge move, right? Meaning if that a hundred dollar stock all of a sudden has big earnings and it goes to one 30, which we've seen
Recently, big stocks like Intel and Texans gapping up, having sold those one 10 calls, which is naked, right? You would have a big problem, right? They, they would be hugely in the money and you'd have a, it's very unhappy outcome. But what we do is a few other overlays. So the first thing is it has to be short term and has to be out of the money. And that gets you again, 75% odds. If you only do it with large cap stocks, so that eliminates small cap stocks, which get bought out, right? And have outsized moves. The odds that short term out of the money options expire worthless move up to about 85%. If then you do options that are 10% out of the money or more, such as the hypothetical I used,
The one 10 calls, the one 20 calls or that 90 or 80 puts, your odds go about 88%. Then what about biotech? That's dangerous, right? You sell naked puts. It's a hundred dollars stock and they, their trials fail and it drops to 20. You'd have huge exposure or they get FDA approval and that a hundred goes to 200. We don't do biotech. And then finally we write strangles, which is what this is called, right? Selling premium above and below only on days typically when the stock has gapped up after earnings. The number one thing that moves stocks is earnings. It's repeating. It comes every quarter. Now there's always force majeure. The chairman's been indicted. You can't, you can't model for that, right? Oh, some, their biggest customer quit them. It's 40% of revenues. Okay. But the,
The one thing that is the most likely to move a stock is earnings. And so a lot of people are out there speculating. Let me go ahead of earnings and buy some options and see if I get paid. I think I've got this right or sell, buy some puts. We're taking the opposite point of view. So if you do short term, 20 days or less out of the money, out of the money by 10% or more, no biotech, large cap only, your odds go as high as 93% that those options expire worthless. And so what we're doing is we're in the decay business. We're looking for a vol spike, a huge move based on fundamentals, typically an earnings beat or miss, the stock gaps up or gaps down. And then there's a lot of premium
In the direction of the gap. People that are bearish, it's down a lot, get more bearish, or it's up a lot, get more bullish. And then we sell the other side of the strangle. And what we found is that this has no correlation to the S&P and is, despite it's, on the surface, very dangerous because people, the criticism is selling naked options, you're picking up nickels in front of a steamroller, right? You're playing for the very high probability of a very small gain. And the option buyer is the opposite, the very low probability of a very high gain, right? So we're the insurance company. We're willing to take that risk. We do sell, in addition to the selling of calls and puts, right? We do overwrite by a far out of the money call
To guard against outsized move to the upside.
So the thesis is, just so I have it clear, after a big news event or earnings, options premiums are going to get inflated because everybody's pricing in continued volatility. But historically, prices tend to settle down after this news. And so you're getting paid on that mean reversion. Is that really kind of the heart of it?
That's the heart of it. We're playing for, exactly. We're playing for a re-rating of a security that's typically, remember, if a stock moves 10%, 12%, you can have a lot of drift. The next day, it's up another four. But when they go up 15 or 20, or at least 10, as we try to model for, while there can be drift, we're sort of adjusting for that by having the strangles another 10%, 15% above or below in the direction of the gap.
So I'm curious around how you're screening for some of these opportunities and how things kind of come in and come out of the portfolio. So are you screening large cap stocks and finding what has had an outside move after an earnings and like, we're just going to play that option? And so how long will it stay kind of in the portfolio? What's the turnover like? Is that?
Yeah. So again, they're always short term. So if one were doing the monthlies now, June 18th, because we have Juneteenth, Friday, the markets close, the 19th, right? The June 18th, which have about, what, nine days to go. We're currently engaged in selling strangles today based on stocks that have had outsized moves and then looking for the decay. Meaning decay is, and volcrush are a very prominent features. And so just as you've referred to, whether it's mean reverting or any other designation, it's, we're selling the banana short, so to speak, and waiting for the spots to start to appear. And then all of a sudden it's not spots, they're just black, rotten.
So this is like really kind of decades of your work kind of showing up in this fun, right? You've spent, I think, a good part of your career studying how stocks behave before and after these, sharp moves occur. So how does that body of research actually translate into this portfolio?
Right. So really what we're proposing and what we're doing, right, is that any investment proposition that's ever been presented, right, to you, Brad, or anyone, think about it. They come and anyone says, listen, we've got this new restaurant. Do you want to take a piece or a bar? Or there's a play on Broadway. You want to be an angel and a sponsor and so on. Or investment in real estate or stocks or precious metals. The person that's presented to you is every time saying, we think if you commit capital, there's future value ahead. It's going to go up that we see, we think we see, or we know. Buy it now, goes up, it'll get better. We're saying, so we don't have any interest in trying to predict the direction based on unknowns. We're simply saying
In the next 15 to 20 sessions, we think this security, which just had a huge move, will then start to consolidate. Backend filling will be range bound. And that is the problem. So it's the study of sequences. Sequencing is very important, right? And that's what charting is all about. If you were to just watch how, again, a cluster of ants moves forward and then pauses and advances again, or a raindrop coming down the window, it streaks and all of a sudden it consolidates and then it back and then it goes again. Meaning sequencing appears in a lot of different, and it appears in prices, whether it's commodities, indices, stocks. Yeah. So that's what I was going to ask.
Is this portfolio just large cap equities and the options around them? Or are you also trading around
The indices or commodities and currencies? All of it. Meaning, because patterns and that study of sequence has nothing to do with what it is, right? It doesn't have regard to whether the company does soda water or sneakers or sushi. And so while the large majority of all strangles are executed after an earnings related event on an underlying stock, so an operating company, there are strangles written against, as you've inquired, ETFs that are based on things like silver or gold or oil or an index. So do you have any sort of mandate in the portfolio? Meaning, you know,
80% of it has to be equities and, 20%, no more than 20% in currencies, or is it purely
You're going wherever the opportunities are? Yeah, no, we're very, so we typically hold 40 positions. So each one is two and a half percent weight. It's kind of an equal weighted endeavor at all times. Remember that we never want to own a security and we typically don't, right? Because we're selling premium. We're selling calls and puts. And so it's all the money is in T-bills at all times as sort of collateral against the event that we were to have a stock put to us or called away. And that is also an important feature of the fund.
So selling premium is a strategy that works, most of the time, but it can have bad moments, like when a stock keeps running after initial news. So how do you guys manage that tail
Risk? Right. So let's talk about the first thing since there is these, let's talk about selling puts. One would say, well, goodness, you've sold a put. You're naked. The stock could drop a lot. Well, that's no, so they're cash secured. The money's in T-bills. So let's say a hundred dollar stock, someone buys it, go out in the marketplace and buy it. And we sell the 90 puts. And that stock drops to 80. Who's better off? The guy who bought it 100 is trading at 80, or the guy who sold the premium took in $3 for the 90s and it got put to them at 90, less the cost of three. So our cost is 87. The buyer of the stock is at 80. You came in at 100.
Our approach, having sold cash secured naked puts, would have our cost basis at 87. Meaning there's no more risk to buying a stock than there is selling a naked put that's cash secured. So that part is elemental and covers itself. The upside risk, which is what you've inquired about, meaning you sold the 110 calls and the stock goes to 180, 190, 200, it gets bought out and so forth. So a couple of things. If you don't do biotech and you don't do small cap stocks, you're only doing large cap stocks. If you look at the history of the data, and that's, I'm talking about all data, right? What is the actual average premium that a large cap stock is acquired for? Because that's the one risk, right? Gets acquired overnight, Buffett's buying it out. So it's basically around 35%.
So now think about that. Meaning there aren't any large cap stocks. Caterpillar is not going to get taken out 200% higher. the markets are to some extent accurate, not efficient, but accurate. If Caterpillar gets taken out and it's not, it's too big for even Buffett, it's going to go out 20% higher, right? If Adobe, you pick any company you want. Now that's not the case with Foot Locker, right? You could have a private equity, it could be eight, but we don't play with that, right? That's not the case with Deckers. That's not the case with a small restaurant. So if it's large cap and it's non-biotech, the nightmare scenario is that it gets bought out. It's not earnings because we only sell after earnings and in the period where there will be
No more earnings between when we sell and expiration. So the one sort of, that's why you're asking, right, of course, is it has a runaway move for the upside. Okay. So if you think about it, let's model that the stock doesn't go up 35%, it goes up a hundred, a hundred. Well, if you have 40 positions and we have about $40 million or a little bit more, we're quite pleased that we've heard that that's one of the quickest raises in a month that has been seen. And we're hoping for more, but either way, if every stock is a million and one of them doubles, doubles against you, that would cause a two and a half percent drawdown. Right. That's nothing. Meaning, not to say we'd want that, but that's a very small amount. And remember, that's a double. When the
Average premium for a large cap stock being acquired, which is the nightmare scenario, is 35%. So that scenario, one stock, two stocks, in two stocks in 15 days of the 40 that are of the 50,000 stocks getting acquired very low odds were to happen, you're talking about very minimal impact on a properly weighted, equal weighted portfolio. And then we do buy far out of the money calls as tail risk concerns. So again, a hundred dollar stock, hypothetical, we sold the 110 calls, we sold the 90 puts, all of a sudden it's getting acquired at 150. We have out of the money calls that if it were to really run away, even though the stats suggest that, again, that doesn't happen for very large cap stocks, they get bought out at 20, 30, 40% premium. We have that in case of the
Nightmare scenario. So it's all quite hedged and wedged, as someone would say.
So who is this fund for? Like, if you're sitting down with an advisor and you're putting WRTH in front of them, how would you advise them to position this in a client portfolio? Like, where do you put it in an already diversified model portfolio in your eyes?
Yeah. this is to compete against some of the lowest vol bond-like income funds with better than bond-like income, meaning looking for S&P type returns. the objective, everyone, you can say, who cares what your objective is? I have objective to be king of the world, right? Or president of the United States or play for the NBA. But the objective is sort of, call it 9 to 11, 9 to 12% with very little drawdowns, right? And the modeling and so forth, looking for things less than 6% in any given year and no down years. And one could say, well, because it's not correlated to the market, right? We're looking. And interestingly, Brad, I think if you define this, it seems so humbling for all of us as we endeavor to, be in the
Risk asset business and try to make a buck is the expression. Because we're the ones doing it in their Ameritrade account or doing it on behalf of the largest capital pools in the world because you're the big PM at the biggest place on earth. If you were to simply search the world over, whether you did your own search or go to AI, Claude or ChatGBT or run the numbers yourself and simply inquire, has there ever been an investment vehicle, ETF, hedge fund, long, short, family office, mutual fund, you pick it, endowment, pension plan that has achieved 10% or better annualized returns with no down years and max drawn out of 6% for a period of 10 years for a decade, the answer is it's never been done. That's not to say we can do it, but that's the goal. It's never been done.
That would be the most elite investment performance ever achieved, right? There are great numbers, but the drawdowns higher than that, right? Or it's no down years, but it only does 4% or 5% a year, whatever it might be. But that is the holy grail, right? To achieve market-like returns with very little drawdown and low correlation to the S&P. Yeah. I talk to advisors every single day and
It is the holy grail. They sometimes want all the return on the S&P, but want zero drawdowns. And I keep having to tell them that it just doesn't exist. But-
You can't have that, right? Well, you can model for it and try to, shoot, that's what I say, even to do, 9% with drawdowns max 5%, 6%, and you know down years that puts you in the
Pantheon. Yeah. So the fund is brand new. It's less than two months old. The ETF world is, as we call it, the ETF Thunderdome. There's a lot of launches. as you kind of mentioned, early response has been good. How are you thinking about kind of the distribution of this fund and, you know,
Going out and marketing this thing? Right. So it's all organic at the sort of, whether you call it the retail level, and we know there are some small institutions involved, but the launch is, well, put it this way, we've heard that half of all these ETFs never get above 25 million. They become zombie funds. They don't really grow, and that's fine, but it is what it is. We have a large and sort of dedicated marketing plan that's being put into effect, of course, because of the institutional exposure for 30 years, as well as all other areas. We do anticipate a big following from that group. Yeah. it's like, I was just, I was just in New York,
What you and I were talking about before. I was in New York last week at the ETF forum, and it's like the, the acceleration of fund launches is just going to continue, and it's extremely noisy. And, and although it seems like a lot of people are launching very similar funds, I think what you've done here is launch something that is, I would say, very unique and dissimilar to what the fads are now, which is, 2x return of NVIDIA, and we've got 50 of those. So I think just for you and your team thinking about how, how to kind of separate in this, this whole noisy area, which has become ETFs, and just was curious how you're thinking about that. Is it, is it going to be, leveraging,
You and your presence that you've had? Is it, is it going to be going to conferences? Is it cold emails? Like, how are you guys thinking about it? Because it is, this is the hard part.
Yeah, we've all of that, and we've got the schedule lined up. Again, we launched April 28th, and here we are sort of June 7th, 8th, but that is the plan. Summer's a little bit slower, obviously, for reasons that are known, but all of the things you mentioned. And again, I think the differentiating factor is that we are, as a strategy, doing something that's not being done. Second, we are entering into these strangles without regard, really, for what the company does. We, again, it's, we're agnostic to that. We're in the business of studying sequences, studying patterns, price action, and that too makes it differentiated. And also, I don't think too many people are proposing, hey, we don't think it's going up or down. We just think for the next
15 days, it'll stay in a range. Yeah. That's, it's, like I said, very unique. And so, Carter, I appreciate you spending some time with me today. Before I let you go, where can people learn more about worth charting and find all the information they need on WRTH?
Yeah. And so, just right out there in the World Wide Web on the internet, if you look at a worth charting group, you'll find it. And how, sometimes the market gods smile on you, how lucky to get such a nice ticker, right? WRTH. So, we're pleased with that as well.
Well, again, Carter, thanks for hanging out with me today. And good luck as, as you progress in over
The next couple of months here. Greatly appreciate it. Thank you.
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