Insane binary options trade ?

[RGLD]

Has anyone tried at the beginning of the year just doing a put spread with a $1 or $0.5 credit?

For example if this year SPY closes at $430 (I hope) at end of 2021. On January 2nd, I do a put option:

Short Strike Put $431 Expiration Dec 31, 2023
Long Strike Put $429 Expiration Dec 31, 2023

It's $1 loss and $1 gain. What if I bet 10,000 short/long contracts? And use a very low/no commission broker so I won't pay $20,000 in contract fees.

That means by Dec 31st 2023, the market only needs to be above YTD for me to collect the full premium. I have a friend who did this trade at the beginning of the year and he's about to get collect pay day at the end of the year. But I think he already got out of 80% of his position by Oct.

Should I try this next year? This is a very binary strategy. But with limited losses and the SPY was down only a few times this decade.

Also yes I know execution is going to be tough, 10,000 contracts with a $1 limit order. Yes, but you don't need to do this in a day, if the SPY is down everyday the beginning of the year, you have plenty of time to load up.

This is an interesting strategy because you're losses are already limited. It's not a risky trade, only as much as you want to put in.

I'm thinking of doing it in 2022 but Biden's gonna crash the economy.

 

[Overnight]

Has anyone tried at the beginning of the year just doing a put spread with a $1 or $0.5 spread in between?

For example if this year SPY closes at $430 (I hope). On January 2nd, I do a put option:

Short Strike Put $431 Expiration Dec 31, 2023
Long Strike Put $429 Expiration Dec 31, 2023

...

Also yes I know execution is going to be tough, 10,000 contracts with a $1 limit order. Yes, but you don't need to do this in a day, if the SPY is down everyday the beginning of the year, you have plenty of time to load up.

This is an interesting strategy because you're losses are already limited. It's not a risky trade, only as much as you want to put in.

I'm thinking of doing it in 2022 but Biden's gonna crash the economy.

As with any derivative dated that far ahead, you have to ask yourself...Is there enough liquidity on those contracts to support the trade potential?

What does your options "ladder" tell you about the volume on those time strikes?

 

[RGLD]

As with any derivative dated that far ahead, you have to ask yourself...Is there enough liquidity on those contracts to support the trade potential?

What does your options "ladder" tell you about the volume on those time strikes?

Just dangle that limit order until the Goldman Sachs traders take the bait. I'll dangle it as long as SPY is below $430 all day everyday until I get it. I'm in no hurry, i have all year.

I actually haven't checked the options "ladder" yet. But I'd assume it's bad, but as long as I use a limit order, I'll play the waiting game.

I'm just throwing this idea out there.. I have no idea how my friend got it executed January this year. I assume he didn't do it in one day, he spread it out throughout the week/month. And he doesn't have 10,000 contracts.

And as always Jim, your feedback is welcomed here and on your show. (I don't have a TV anymore, but I watch you at work)

 

[Overnight]

...
And as always Jim, your feedback is welcomed here and on your show. (I don't have a TV anymore, but I watch you at work)

Well, I reckon' destriero will give you some feedback on this idea once he is back from Vegas trip.

 

[RGLD]

Well, I reckon' destriero will give you some feedback on this idea once he is back from Vegas trip.

Who?

 

[Overnight]

Who?

That options guy who posts once in a while.

 

[RGLD]

That options guy who posts once in a while.

Is he the only options expert on this forum you trust?

 

[Overnight]

Is he the only options expert on this forum you trust?

I do not know who is an options expert or not, since I do not know options.

I was simply mentioning that he is likely to give you feedback on your idea when he is able to, because that is his nature. He's out of town at the moment.

 

[ajacobson]

When the OEX was thriving most MMs would buy a 100 point strangle and intentionally take it off their trading sheets - so from a risk management standpoint it was out of mind. Saved some lives and became very commonplace post the 87 market break.

 

[BlueWaterSailor]

Has anyone tried at the beginning of the year just doing a put spread with a $1 or $0.5 credit?

For example if this year SPY closes at $430 (I hope) at end of 2021. On January 2nd, I do a put option:

Short Strike Put $431 Expiration Dec 31, 2023
Long Strike Put $429 Expiration Dec 31, 2023

It's $1 loss and $1 gain. What if I bet 10,000 short/long contracts? And use a very low/no commission broker so I won't pay $20,000 in contract fees.

That far out, the strikes are $5 apart, not $1. There's also no Dec 31 expiration; 15Dec23 is the closest. At the moment, the O/I is 1845 at the 430 strike, and a bit below 2500 for the 435 and the 440, so I doubt that you'll get filled for 10k lots unless you lift the offer a good bit.

But given your thesis - why would you wait for January, etc.? It seems to me that buying a spread at any time for an expiration two (or however many) years down the road would meet the criteria.

This is an interesting strategy because you're losses are already limited. It's not a risky trade, only as much as you want to put in.

Even if you had $1-wide strikes, you're still talking $1x100x10,000 - i.e., $1M at risk. Given that risking no more than 1% of total account size per trade is a fairly common rule of thumb, "not a risky trade" isn't how I'd describe this. Unless you have at least $100M to play with, that is... in which case I sorta doubt you'd be asking this kind of question here.