(almost) riskless strategy ?

Discussion in 'Options' started by kiwi1, Aug 20, 2010.

  1. kiwi1


    (almost) riskless strategy ?

    1) a couple/few weeks before expiration
    2) DeepOTM-Call-Spread or DeepITM-Put-Spread (on some major index underlying)
    3) hold to worthless expiration.

    Ignore the greeks (theta is your only true friend)
    Granted it will have a big margin,
    but it is a guaranteed return (except if underlying swigns hugely - i know i know).

    Please tell me whats wrong with that picture?
  2. You will win most of the time. But the one time you lose due to a huge gap up or gap down, it will wipe out your six months in a row of wins.
  3. robhansen


    Nothing at all wrong with this strategy. In fact, why not do both at the same time; that is a bear call spread deep out of the money, and and bull put spread deep in the money. Double your pleasure, double your fun (and double your stress). You should read this article from SFO magazine, November 2008. A trader by the name of Dan Harvey discusses this concept and talks about what can go wrong (and what to do about it). Do a google search with the words, "Dan Harvey Supertrader SFO." Good luck.

  4. Rimping


    Well this is certainly not my way of trading. I always traded to get rich, not for income.

    I doubt wether you wil make a return in the long run because once in a while you will lose your margin (the difference between the two strikes). When that happens probably all those tiny profits will be lost (or more).

    When the black swan happens you should get rich, not lose everything.
  5. syspool


    Could you give a couple of actual examples; one that made money and another to enter into now. I would like to follow your strat.

  6. DeepITM-Put-Spread
    The bid ask spread, plus commissions gives you a guaranteed loss, post some actual paper trades for a closer look.

    1 bad trade wipes out 20 good trades, post some actual paper trades for a closer look.

    Please tell me whats wrong with that picture?
    Need some real numbers from a stock you have in mind and not some XYZ example with made up numbers.

  7. MTE


    This is a high probability strategy, but it's far from "almost" risk free. It's called collecting pennies in front of a steamroller. It works until it doesn't and the loss wipes out months if not years of profits.
  8. Guarantees? Death and taxes.
    The rest is up for grabs :)
  9. If the spread had guaranteed losses, no one would ever do them. Try again...check synthetics
  10. LEAPup


    #10     Aug 21, 2010