No/Low risk, low return option strategies?

Discussion in 'Options' started by arl, Nov 3, 2005.

  1. arl


    Does anyone trade or know of any no risk or very low risk strategies that can be done at the retail level, that earns higher than the risk-free rate of return (currently ~4%)? Does anything like this exist at all? There has to be some way to earn single digit returns with options, everything I see seems to be aiming for at least double digit annual returns.
  2. keyser1


    buy goog calls every month. this stock never goes down. practically risk free.
  3. Go buy the Larry McMillan books on options and read them....plenty of stuff there...I'm still reading them myself....great stuff


  4. I know of no such strategy, of course I'm sure one exists even if it is only in theory, but my logistical approach would be that it would be "easier" to attain a double digit gain or loss, than a single. Since the majority of individual trades can occur with a double-digit return (again +/-), you would have to have a strategy where the overall sum of your trades fell almost perfectly in line with your targeted W/L ratio and the sum of the trades would also have to be in line with your targetd profit/trade and loss/trade limits... I believe the nature of options (the large spreads for example) make it very hard to hit profit/loss limits consistantly.

    and if you could follow such a strategy, I think you would be good enough to hit large double-digit gains anyways:p

  5. Low stakes... and put the rest of your capital in low risk securities.
  6. Very easy!

    If you already know of a strategy that has a double digit risk/return potential, here is what you can do.

    Trade 50% of the money you intended to trade for single digit risk/return with that strategy and put the other 50% of your account in risk free interest.

    Therefore over your portfolio you will have achieved single digit risk/return, with a bonus of 2% from the risk free interest in half of your portfolio.

  7. cnms2


    There is no such thing as no risk options strategy for the retail options trader. If you poke around EliteTrader's forums you'll find interesting discussions about options trading expectancy. Bottom line is that options are fairly priced by the market, function of their probability of expiring in-the-money. But, because of the slippage (bid / ask difference) and commissions, always when you open any options position you start with a negative expectancy. If your estimate of the future price and / or implied volatility proves to be correct you can either close for a profit or further trade into a positive expectancy position.
  8. MTE


    No such thing as a risk-free trade, there's always risk, without risk there's no reward, except for arbitrage of course, but that's a different story.

    Check out this thread for some ideas:

    Another thing you can do is this. Take 90% of your capital and buy zero coupon bonds and use the other 10% to trade options anyway you like. No matter what happens with your 10% of capital in options, you're guaranteed to get back your intial capital when the bonds mature. Doesn't guarantee you a single-digit return, but it is risk-free.
  9. cnms2


    Why would you recommend "SPX Credit Spread Trader" for ideas? optioncoach writes in his opening post: "I will start a Journal of the credit spread trades I make month to month on the SPX, XEO, OEX and possibly RUT". They are high probability / low reward trades, but not higher or lower risk. Do you equate "high probability" to "low risk"? I don't think so. That strategy has a very low $reward / $risk ratio, and its expectancy is negative. That thread is quite long: could you point more specifically to some of the ideas you recommend?
  10. MTE


    Well, why not!? I didn't say that it was THE strategy to use nor did I equate "high probablity" to "low risk" just pointing someone who asked for help in the direction of a thread where the person actually posts real option trades without all the bullsh*t that some other threads have. Besides the amount of risk can always be adjusted to suit the individual's level!

    Vertical spreads and iron condors can be low risk strategies if used correctly, so why not....
    #10     Nov 5, 2005