You go long 10 delta in put spreads -> market trades lower -> you're now long 50 delta in ps -> you short 50D in CFD -> market rallies and you lose $1,000 on CFDs and make $120 on your ps. How do I make money? Volume.
Can't be sure you make money until you post some verifiable info... like an account # or something. But, yeah, obviously the strategy has to scale. Thanks for the tip anyway kiddo.
Well @spy , I can help you backtest some of these strategies, iron condor, etc, to get a gut feeling of what you're dealing with. Free of charge, just for fun. In general, when you're dealing with options, there's one and only one thing that matters: the fair value of the option. For a Black-Scholes model of the market, where volatility is supposed to be known and constant, given some price of the underlier (say SPY), then the option can have one and only one arbitrage-free fair value. It's like a fair coin, once you know the probabilities of landing head or tail, the price of a bet can only be one. With this in mind, no combination of options be it iron condor, spreads and shit can change this fundamental. If the involved options don't trade at a value outside the fair value, combining them won't help. Now, trading delta-neutral options which don't depend on direction is very tempting. Market makers do it all the time, but take a look at the snapshot below of a backtest from 2020 to 2022 involving 16 stocks which are part of S&P 500. I'm showing three simulations: As "SPY", you see the actual trajectory of the SPY ETF during that time, practically the S&P 500 index As "Simple Long" strategy you see the strategy which involves dividing the available capital in 16, buying 16 stocks for 1/16th of the capital then after one month, selling it all and redo from start. So you re-allocate the resulting capital among the 16 stocks. End result is basically identical to the index, not better, not worse. Then as "Normal Arbitrage" you see what you get when you sell delta-hedged (delta-neutral) call options on each of the 16 stocks. I'm selling monthly options here and hedge once a week, thus 4 times within the lifetime of the options. I buy calls for 1/16th of the total capital and after 1 month, close all positions and reallocate what's available. Conclusion: selling calls at ask (so you cross the spread, is not profitable). Now if you sold them at bid, it would be a bit better but you're still losing in general. But market makers sell on both sides, so this means they will sell a call at ask, buy a call at bid and thus get a zero position overall while cashing the spread. Then do it again until they can't sell the spread anymore.
So let's see what happens when in addition to selling a call at bid (so better than the layman person is able to achieve), you also add one full spread sold to the suckers. Notice how the modest loss immediately changes into a modest profit. That's what I call "barey working" on what appears to be the now deleted, "I will sell you my strategies" options thread. Mind these are very liquid very low spread options, with larger spreads you are basically printing money if you can sell the spread.
In the meantime I'm investigating a strategy involving several options + hedging which seems to make double the return of the index with double the Sharpe (so around 20% with a Sharpe of 1 on this period). But I don't understand why it works, particularly since I arrived at it by reverting what "should have worked" based on my mathematical calculations. Think of it my calculations shown me that selling overpriced apples while simultaneously buying underpriced oranges should work but when I backtested that, they were actually losing. So I reverted it, buy overpriced, sell underpriced and it works! Obviously I must have misplaced a sign, but where?! I can't trade this until I find it and I'm convinced it's not just an error in calculations.