I don't know if it is zero risk, but I was looking at a system that employed selling naked puts on S&P stocks, looking at what % of the S&P those stocks make up, then buying puts on either the SPY or OEX ( I don't remember which) at a ratio that protected you from big downturns on the stocks and made $ on the difference. It required a fair amount of margin but the record he published looked pretty good and the math seemed sound.
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Is it true
- Thread starter StockBagger
- Start date
Quote from chrismontez:
I don't know if it is zero risk, but I was looking at a system that employed selling naked puts on S&P stocks, looking at what % of the S&P those stocks make up, then buying puts on either the SPY or OEX ( I don't remember which) at a ratio that protected you from big downturns on the stocks and made $ on the difference. It required a fair amount of margin but the record he published looked pretty good and the math seemed sound.
That's called a dispersion and it's not risk free.
Quote from dipper17:
Thats not really a good dispersion set up. Not to mention there is no edge in that trade at all since you'll find the SPX vs. SPY or OEX priced to perfection.
Either way dispersion is not a strategy which can be employed by a retail individual investor.
I didn't say it was a good set up, just that it is similar to a dispersion trade. Also, a dispersion trades the components against the index not SPX against SPY or OEX.
While it is not risk free,but since selling option=selling protection=selling insurance to the public.
It is sensible to give it a try.The only problem is in the changing market,both volatility and the extreme event frequency of s&p are increasing,so the only risk is being wiped out by a black swan event.
If you have some ways to ensure the black swan event keeps away from you,I think it is not impossible to archieve risk free return.
Be open-minded.
It is sensible to give it a try.The only problem is in the changing market,both volatility and the extreme event frequency of s&p are increasing,so the only risk is being wiped out by a black swan event.
If you have some ways to ensure the black swan event keeps away from you,I think it is not impossible to archieve risk free return.
Be open-minded.
Quote from Jaques:
While it is not risk free,but since selling option=selling protection=selling insurance to the public.
It is sensible to give it a try.The only problem is in the changing market,both volatility and the extreme event frequency of s&p are increasing,so the only risk is being wiped out by a black swan event.
If you have some ways to ensure the black swan event keeps away from you,I think it is not impossible to archieve risk free return.
Be open-minded.
There's no edge in selling options vs buying them.
It is very easy to achieve risk free return, just buy t-bills!
"Not to mention there is no edge in that trade at all since you'll find the SPX vs. SPY or OEX priced to perfection. "
I Think you misunderstood the setup. You don't sell SPY puts and buy OEX puts. You pick a basket of stocks on the S&P ie. AAPL, INTC, COP, C etc... , you add up the % of the S&p is made up of those particular stocks, if it is 20%, you then buy enough puts on the S&P to cover your stocks tanking and causing a corresponding drop in the S&P. Once again, I don't remember the specifics on # of puts bought vs # sold, but the math and the results looked good.
I Think you misunderstood the setup. You don't sell SPY puts and buy OEX puts. You pick a basket of stocks on the S&P ie. AAPL, INTC, COP, C etc... , you add up the % of the S&p is made up of those particular stocks, if it is 20%, you then buy enough puts on the S&P to cover your stocks tanking and causing a corresponding drop in the S&P. Once again, I don't remember the specifics on # of puts bought vs # sold, but the math and the results looked good.
Quote from Jaques:
While it is not risk free,but since selling option=selling protection=selling insurance to the public.
It is sensible to give it a try.The only problem is in the changing market,both volatility and the extreme event frequency of s&p are increasing,so the only risk is being wiped out by a black swan event.
If you have some ways to ensure the black swan event keeps away from you,I think it is not impossible to archieve risk free return.
Be open-minded.
I would say last week was a mini "black swan event" for SPY options, unless you were selling the calls. I'm sure it has rattled a few option sellers.
"There's no edge in selling options vs buying them."
I see this quote often, and fail to understand it. I would really like to see the justification for it.
Scenario 1. I know that if I sell a call 2 strikes out and the stock stays flat I make $, if it goes up a little, I make $ if it goes down a little I make $, if it goes down alot I make $. I only lose $ if it goes up alot . So I make $ in 4 of the 5 potential ways a stock can move.
Scenario 2. know that if I buy a call 2 strikes out and the stock stays flat, I lose $, if it goes up a little I lose $, if it goes down a little I lose$, if it goes down alot I lose $. I only make $ if it goes up alot . So I lose $ in 4 of the 5 potential ways a stock can move.
I don't sell naked options so I'm not defending my trading style, but would like to know what I'm missing here when it appears the odds are in the option sellers favor.
I see this quote often, and fail to understand it. I would really like to see the justification for it.
Scenario 1. I know that if I sell a call 2 strikes out and the stock stays flat I make $, if it goes up a little, I make $ if it goes down a little I make $, if it goes down alot I make $. I only lose $ if it goes up alot . So I make $ in 4 of the 5 potential ways a stock can move.
Scenario 2. know that if I buy a call 2 strikes out and the stock stays flat, I lose $, if it goes up a little I lose $, if it goes down a little I lose$, if it goes down alot I lose $. I only make $ if it goes up alot . So I lose $ in 4 of the 5 potential ways a stock can move.
I don't sell naked options so I'm not defending my trading style, but would like to know what I'm missing here when it appears the odds are in the option sellers favor.