Buy Write with no risk, is it possible?

M

michaeltrader789

Is it possible to sell buy writes with no risk and just collect premiums?
For example, if I will sell 100 buy write and hedge my position by shorting futures on stocks (and if date of expiration of options and futures will be the same). Does that mean that we are selling buy writes and collecting premium with low risk or no risk? What potential risk I can head? I’m new to this , can’t find enough information on this in the internet.
So, is it possible? Is it a common strategy, why there is no information about this in the internet?
 
If the stock spikes far above the strike on your written options, your stock will be called away, and you will be left with a naked short position on your futures contract (which is now underwater).
 
michaeltrader789 said:
Is it possible to sell buy writes with no risk and just collect premiums?
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☼ Reward follows risk. Always. No getting around it. TANSTAAFL and all that.

"If the stock spikes far above the strike on your written options, your stock will be called away, and you will be left with a naked short position on your futures contract (which is now underwater)."
☼ And why? Because you've hedged a hedge. The BUY of the BuyWrite was your hedge on the Write. By shorting an associated future contract, you're now exposed to topside risk (which had been cut off by the presence of the Buy-ed stock.

You need to put this onto a profit/loss chart, and plot it all out, before you get near the Trade buttons. The future contract of your "hedge" amounts to a 45°, negative-sloped line that essentially counters, dollar-for-dollar, the 45° positively-sloped line of the stock.

The reason the OP hasn't seen it? It doesn't make sense to do. (Under most circumstances.)

800px-Covered_Call.jpg
 
michaeltrader789 said:
Is it possible to sell buy writes with no risk and just collect premiums?
For example, if I will sell 100 buy write and hedge my position by shorting futures on stocks (and if date of expiration of options and futures will be the same). Does that mean that we are selling buy writes and collecting premium with low risk or no risk? What potential risk I can head? I’m new to this , can’t find enough information on this in the internet.
So, is it possible? Is it a common strategy, why there is no information about this in the internet?
More...

It sounds like you're buying SPY, shorting a call, and shorting enough futures to eliminate the delta risk of the overall position.

If that's the case, you've synthetically constructed a short straddle. There's no delta risk when you put the position on, but that changes after a few minutes when the SPY moves, as you are exposed to gamma.

It's probably easier to work through an options textbook than to do Internet searches. Here's one that's relatively easy to read:

 
I think it was UBS who had 10 years of failing with buy-writes -covered calls are a problem because of the underlying-at some point it will tank and you cannot recoup your losses for years,while you have limited upside potential. It's how we all start with options.
 
Windlesham1 said:
I think it was UBS who had 10 years of failing with buy-writes -covered calls are a problem because of the underlying-at some point it will tank and you cannot recoup your losses for years,while you have limited upside potential. It's how we all start with options.
More...

As a liquid alt, the trade has better diversification characteristics when it's put on with no delta, but that's probably too complicated to explain in a PowerPoint presentation.
 
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