Free money option strategy - seriously 100% risk free

Quote from failed_trad3r:

I just found a free money options strategy. 100% risk free, you won't believe your eyes.

Lets say you have a stock trading at $20.
Write a put against the stock, strike $45, and sell the option for $25. This way the option it right at the money.

What do you guys think? A good strategy no? :D
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a) You will have difficulty selling this put at parity. The bids will be lower

b) You will be assigned an exercise notice immediately. That means no profits and you must pay commissions

c) Forget it. This is not viable

Mark
 
Quote from failed_trad3r:

I came up with a new strategy. On the day before expiration, sell a ITM put and hope you don't get exercised.

Good plan no?:) If the gamble works, thats free money!
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Your strategy is based on "hope". Now I realize that hope, wishing and prayer are the top three strategies on many MB's but historically they're about as poor as you can get.
 
Quote from failed_trad3r:

I came up with a new strategy. On the day before expiration, sell a ITM put and hope you don't get exercised. Good plan no? If the gamble works, thats free money!
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Great idea! Use high IV stocks so you get more bang for the buck. You could become known as the short putz king!
 
Quote from RedEyeFly:

I don't know what's going on here but I feel like I just showed up to a party where everyone is already drunk.... and the host is sucking helium.
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Wait wait wait! I have a better one. Buy a stock the day before the ex-dividend date, then sell it the next day! FREE DIVIDEND! You can do this strategy every day and never lose! Wow...why didnt anyone else ever think of this?

Could someone pass the balloon to me? (hic) :D :D :D
 
Quote from xflat2186:

I prefer the nitrous to the helium, reminds me of the good old days at a Dead show
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Whatsa matter wid you? You have something against singing along at the Munchkin Show?
 
A covered call, no matter how deep in the money the call is, is exactly the same thing as selling a PUT NAKED. See if your broker thinks this is a free trade? If a a call that is that far ITM it means the put is very far OTM. If the call has $3 of time value the put should as well. And for a put option that far OTM trading for 10% of the value of the stock, it must be a pharmaceutical company like Valeant or something that has a chance (as perceived by the market place) as going out of business.

As for FAILED TRADER. Selling an ITM put for $25 when it has $25 of intrinsic value (stock at $20 and the 45 strike put trading for $25) means it has NO time value. You can NOT make money on this unless the stock goes up. It is a LOT like buying the stock, actually.

I am NOT trying to poop on your ideas. If we are all thinking alike, someone is not thinking. But I want to point out dividend risk. If this stock pays a dividend while you are short the put, you can have other issues too. Just be careful as I don't like to sell any option without time value. It means the call at the same strike is probably going for $0.01 and I would rather buy that, then sell the put.

Just my 2 cents. Ignore it if you want. I am trying to be of help and not attacking. Thanks
 
Roberto Lopez said:
A covered call, no matter how deep in the money the call is, is exactly the same thing as selling a PUT NAKED. See if your broker thinks this is a free trade? If a a call that is that far ITM it means the put is very far OTM. If the call has $3 of time value the put should as well. And for a put option that far OTM trading for 10% of the value of the stock, it must be a pharmaceutical company like Valeant or something that has a chance (as perceived by the market place) as going out of business.

As for FAILED TRADER. Selling an ITM put for $25 when it has $25 of intrinsic value (stock at $20 and the 45 strike put trading for $25) means it has NO time value. You can NOT make money on this unless the stock goes up. It is a LOT like buying the stock, actually.

I am NOT trying to poop on your ideas. If we are all thinking alike, someone is not thinking. But I want to point out dividend risk. If this stock pays a dividend while you are short the put, you can have other issues too. Just be careful as I don't like to sell any option without time value. It means the call at the same strike is probably going for $0.01 and I would rather buy that, then sell the put.

Just my 2 cents. Ignore it if you want. I am trying to be of help and not attacking. Thanks
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Not completely correct.

This is a popular misconception about Covered Calls being the same as a Naked Put.

The Covered Call is tied to a stock, and if the stock carries dividends, then you may be better off performing the Covered Call structure.

With the glorious time period we are now in with tightening bid ask spreads, no assignment or commission fees, some of these ideas can be further pushed into not only risk free trades, but risk free trades that carry dividends...

The issue is that they carry a poor rate of return.

And, if you go after those high yielding stocks, their bid ask spreads are also high.
 
Right dude, it’s not as though the dividend is priced into the synthetic. What risk free structure are you referring to?

Buy the stock, short the synthetic, and receive the dividend. The div is priced in the synthetic. No arb on the dividend.

You’re better off in the CC if there is an increase in the div while holding the CC.

Happy Thanksgiving.
 
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