For Options Gurus and Experts

I said that manager B knows the expected outcame not the exact next outcome. Same as a casino knows his expected gain on a roulette wheel not what will be the next number.

Assume that you know that the S&P500 has grown at an AVERAGE annual rate of 10%, assume that this grow will not change in the future (and you are the only one to know this) and assume the the distribution of returns is lognormal, is it possible to make risk free money on this knowledge? We find no. Options are priced on risk neutral basis, they assume all stocks will grow at the risk free rate.

However what about a CPPI strategy instead of buy and hold? Can CPPI give us superior risk-adjusted returns?
P.
 
Quote from IV_Trader:

basically you are saying that if xyz is currently at 100 , price "guarantee" to be at 112+ twelve month from now , right ? Manager B have a huge edge , regardless to any(down , the more the better) price action in the next few months. Where do I sign up for this deal ? :)
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Nothing is "for sure" esp 12 months from now. Chances are the options will be expensive and not worth a 12 month wait unless you are doing some kind of calendar spread.

There is no free money, there are no risk-free trades, and options are more risky than stocks period.

If you are looking for an easy way, I think it was already mentioned that you should just sell options against the stock you own every month. But I would go a little more than 1% out unless you know things you should not.

Not sure if that helps but it seems like you are looking for a quick easy profit and that you will NOT find with options. (for the most part).
 
You're looking in the wrong place.

Keep it simple.

PS. One percent per month is chump change if you know what you are doing.
 
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