Beating the Prime

Discussion in 'Options' started by dis, Dec 17, 2002.

  1. Nothing wrong with it; except I don't think it is as profitable or as stable of returns ...
    #41     Dec 30, 2002
  2. Mispe


    I understand all your options have same expiration dates. So the Long put has to be necessarily far OTM to leave a meaningfull return on the short call. That means you are on risk on the underlying. You try to limit the risk with diversification being short and long the stocks. But is that sufficient ? and what about correlation ?
    You have to do, I suppose, a hard work of selection on fondamentals, volatility etc ?? don't you ?
    During the life of the option the short call may lose quickly a big part of its value. Do you wait till expiration anyway or do you roll down..... and roll up if the price go back ?
    #42     Jan 4, 2003
  3. You have the idea; we don't roll, just close-out ...
    #43     Jan 8, 2003
  4. qdz


    that strategy, in my opinions, unfortunately does not exist, if your expectation on the minimum risk is less than 3.75% (5% - 1.25%).

    #44     Jan 8, 2003
  5. nitro


    This sounds like Pair trading with options.

    #45     Jan 8, 2003
  6. I don't know if I would put it that way ...
    #46     Jan 8, 2003
  7. dis


    Only if one assumes, as do options pricing models, that the market is random. Since this is not entirely true, it should be possible to do better by incorporating a directional bias into one's options trading strategy. I do this by writing near-term OTM puts. For instance, today I sold SMH Jan. 22.5 puts for a credit of 0.25 . If the underlying declines ~8% or less within the next 10 days, I stand to make ~1%, otherwise I will turn around and sell Feb. 22.5 or 20 covered calls . The other day I sold EMC Jan 7.5 puts for a credit of 0.35. Chances are, the stock will get pinned to the strike on Jan 17, and I will make ~6.5% :cool: If not, see above, and so on. The main problem with this strategy is that, because there is always a chance that the market might crash, it may not be suitable for a low-risk account that I have in mind.
    #47     Jan 8, 2003