Is such a strategy is even theoretically possible?

Discussion in 'Options' started by mgregor76, Apr 16, 2011.

  1. mgregor76


    Say I am not aiming to make any profit trading options on my two separate accounts but just to stay even.
    One account would be in loss and the other one will be in profit for approximately same amount of money so overall no profit or very limited loss is created.
    But what I do want from this strategy is the ability to predetermine which of two accounts would loose money and which account will make money. Any thoughts?
  2. They will both lose money from commissions. You're equal gain/loss strategy is a negative sum game.

    And no you can't predict ahead of time. If you could, you could just not take the trade in the account that would lose money. Or better yet, you could just have on account and go long/short accordingly.
  3. I'm assuming the ideal is you want to make money in your IRA and take the losses in a non-IRA so you can write them off.

    If you bought an ES put and call in one and sold the exact put and call in the other (ex. -1 1320 Apr P & C in the IRA.....+1 1320 P&C in the cash) this could achieve what you are looking for depending on how you manage it. You would HAVE to have the discipline to reset the trade....say you took your profit on the 1320 P when (if) ES goes to 1340) you must be willing to actually take the loss and not "hope" it will go the cash non IRA account. If you have substantial other income and need the write offs it could work......of course without proper management it could also blow up. Not fool proof because the gain and loss are not necessarily equal depending on the greeks.
  4. 1) You could do what Hillary Clinton did with her cattle futures "trading". You submit one market order, to go "long", near the opening and another market order to go "short", near the opening. At the end of the day, you offset each order. The profitable trade is allocated to your IRA account. The losing trade is allocated to your taxable account. :cool:
    2) In Hillary's case, she "kept" the winning trades and someone else "absorbed" the losers. :eek:
  5. semuren



    I think there is a workable strategy here, though no exact way to do this. But I do not think the straddle based example above would work as well as using FOTM put spreads. Also, I am not sure if any IRAs can trade futures options (mine can't, anyway), and I am sure no IRAs can have naked short calls. Plus the straddle seems to me less likely to ensure the transfer of funds from one account to the other because it is by no means sure which position would profit and which would lose (if only it were trading would a bit easier:) ).

    So my thought would be to short a FOTM index put spread in the IRA, and go long that same spread in the taxable account. The prices should be very close and the risk/reward characteristics should be almost exactly opposite. Especially if the spread is FOTM, the short spread should expire worthless most of the time and the long spread should then come in at max loss. On the rare occasion where you get some huge drop in the underlying the profit in the taxable account is going to be same as the loss in the IRA, but much more than the usual profit in the IRA. But, especially, if the spread is far enough from the money I would think that the overall effect would be to shift funds into the IRA and show losses in the taxable account. I guess you could also use some sort of "risk management" and stop out at certain loss on the IRA side while taking the offsetting profit on the taxable side.

    I suppose that you could use call spreads instead, or in additions to the puts (why bother with the extra commissions and risk for the short position). My thought on using puts is just that it would take advantage of the overall tendency for the market to rise.
  6. I want to do that. But I'm thinking it's not legal for regular people...
  7. Magic8


    You can't mix and match accounts.

    You have a ROTH account that you can trade out of. Take wins and losses.

    You have a taxable account, a different account entirely, that you can trade out of. Take wins and losses.

    You cannot net wins/losses across accounts. At least I am not aware of that being legal.
  8. IB I have heard does allow you to trade futures in an IRA so I assume they allow futures options as well. But I don't know...I can at TOS but I prefer to try and make money in both accounts. Too much risk in trying FOTM you won't earn in one what you will in the other..(I think) haven't really given it a lot of thought.

  9. who would know if your using 2 different brokers?
  10. semuren



    Admittedly I have not checked recently but last time I did ToS let one trade futures in an IRA but not futures options. Seems stupid but it might be some sort of CFTC rule. (Certainly FNRA rules can be a bit stupid.) Also, I would be pretty surprised if you can naked short calls in any IRA, maybe that is only available in the sort of account that Hillary Clinton had. Anyway, the FOTM verticals swap is a more reliable way to do this as a "transfer" than swapping straddles. The chances of a FOTM vertical going out worthless are much higher (and thus more predictable) than the chances of a straddle doing so.

    Actually, there is pretty much no risk in doing the opposing credit and debit spreads. There would be some small amount of slippage in both trades and you have to pay commissions. But other than the main risk should be that the trade does not go in the direction you want and you lose in the IRA and gain in the taxable account. The pay outs will be inverse. Think about it. If you sell and 10pt SPX put spread for 1.00. Then you buy the same spread for 1.00, what could the net outcome be? Well, either you keep the 1.00 credit on the short spread in the IRA and lose the 1.00 debit in the taxable account or this happens with some fraction of the the credit -- which would be the same or very close depending on slippage. The other "bad" outcome is that you go below the lower strike (long strike in the IRA, short strike in the taxable account) at expiration. Then you would have a 9 point loss in the IRA and a 9 point gain in the taxable account. To stop it from getting there you could just close both spreads if things were going in that direction and make the transfer smaller. In some sense if you run this strategy and infinite number of times it should be flat (aside from the commission and slippage loss). But I think -- especially if you stop out -- you should be able to transfer money one way in net/net.
    #10     Apr 18, 2011