I have an option strategy i formed and i want to hear thoughts about it, the idea is to sell long term butterflys, who is not that sensitive to big movement of the underlying, let say in average you collect 7 dollars premium to risk 1 dollar you sell multiple butterflys in different strike prices and different experation dates to minimize risk on all of these butterflys. with the money you collected you buy stocks and bonds this way you leverage your money 4 or 5 x but with that, the risk from the butterflys is low because of the long time and the nature of butterflys. this is the main idea, any thoughts?
Achi, did you seriously think that your broker was stupid enough to give you a loan with no collateral? Or, to put it another way, that the market just puts money in your pocket the second you open a trade? Please go back to school.
1: I didn't mentioned but I use almost all of the money to buy short term(3 month) treusery bonds, for that I need only 1% buying power. 2: when you sell option premium you can use the credit you collect to buy equetis until you close the position. I will give you example. 10,000 dollar account sell butterflys at 1 to 7 risk profile - risk 7,000 dollars and collect 49,000 credit. (until now 7,000 dollar buying power used). buy let say 50,000 dollar of 3 month treusery bonds ( another 500 dollar buying power). buy 5,000 dollar worth of stock (using 1,500 dollars of buying power). summery: margin equity = credit+ original money=59,000 long marginable value =stocks +bonds = 55,000 buying power used = butterfly max risk + 1% of treusery bonds + 30% of stocks/etf= 9,000