Deep ITM Back Month Options

[elduerino]

Hello Everyone

I have an idea, nothing too special, but I feel that there are probably some massive holes which I am blind to, and will most likely rip me a new one if I do not ask. So I want to extract the Bid/Ask spread on Deep ITM (delta 1) backmonth options, on stocks that are slow moving dividend paying stocks. Is this going to be a situation where
1)Dividend changes will hurt me
2)IV movement will hurt me, I figured that Deep ITM for slow moving dividend stocks will have relatively static IV.
3)Hedging will be difficult, my starting point was to hedge delta neutral.

The reason I have thought of this is because I have made a good deal of money market making on illiquid securities before, and thought that this might be a good place to start with options.

Any thoughts?

 

[nazzdack]

Quote from elduerino:
----I have an idea....
----I want to extract the Bid/Ask spread on Deep ITM (delta 1) backmonth options, on stocks......
----1) Dividend changes will hurt me....
----2) IV movement will hurt me....
----3) Hedging will be difficult, my starting point was to hedge delta neutral.
----I have made a good deal of money market making on illiquid securities before, and thought that this might be a good place to start with options.

1) Unexpected dividend reductions would tend to hurt a net long-call position.
2) Implied volatiltity decline would tend to hurt a net long-call position.
3) Two-sided order flow may be difficult to come by to keep your overall position from getting too lopsided.