My strategy to earn money with no risk.

[Eliot Hosewater]

Check out ISRG Jan 07 120/115 collar.

A few seconds ago it was a $5 credit, but has dropped to 4.70. Or check out others in that range.

Stock is kind of pricey at $120.

 

[Don87109]

Quote from boots:

That is actually what I was able to put the trade on at this morning at 11:05.

Stock at 77.44
call at 7.9
put at 2.9

Net income was $5 at 77.44.

At this point the stock is 77.30 and the net on the options is $4.8 for a 6.88% return and a MAX loss of Zip. Might be able to leg in and do alittle better.

boots

PS Just did one on RIMM for 9.08% but it is not a Zero risk (.28 potential loss)

Relative to your 1st play with the 6.88% return, what strike price did you use and what is the expiration date?

My guess is that you might be overlooking the ITM amount of one of the contracts. That is, for a $75 strike "net income" would only be $2.56.

Don

 

[momoneythansens]

Hi,

Welcome back boots!

I see you're a fan of the long term "risk-free" collar strategy. It certainly operates on a different time frame to most of the option trades that are usually discussed in this forum.

Nice example thanks. The risks are of course:

1) WLP plummets = 0% annual risk free return!
2) Short CALL assignment approaching expiration - though this can be managed.

The real "cost" of the trade is the money "tied-up" during the period, otherwise known as opportunity cost. On balance are you any better off compared to treasuries? That's for you to decide.

You're right, being aggressive with legging in can sometimes make these worthwhile. High volatility underlyings better IMO.

In short, if you're prepared to wait, leg in, right underlying, high volatility, longish term (> 9 months) you can get near zero risk collars with potential for 15-20% per annum.

Good luck!

MoMoney.

Quote from boots:

Sorry, been on the road for a few weeks.

Here is one.

WLP @77.44
Sell Jan 07 75 call for $7.9
Buy Jan 07 72.5 put for $2.9

Should give you a little over 7% annual risk free return. Not a great one but not bad. If you guys see any problems with this I am all ears.

It appears there will be good opportunities to roll these up or down for increased returns but I am still learning so if you have any comments on that I would be real interested.

boots

P.S. Yes you are correct about the higher probabilities. I did not word that well. I use the probabilities and the risk to come up with the Expectation so both are taken into account.

 

[zdreg]

Quote from _mas:

Ripley: So is there a risk to my strateygy? and if the strategy is not the best one, which one should i choose instead, considering best risk vs reward?

incredible. there are basically two kinds of people on this board. those who stick to their opinion no matter what. those who change their mind at the 1 st contrary opinion.

prediction: both will be failures as traders.

 

[boots]

Don,

>.............Relative to your 1st play with the 6.88% return, what strike price did you use and what is the expiration date?

My guess is that you might be overlooking the ITM amount of one of the contracts. That is, for a $75 strike "net income" would only be $2.56.>

You are correct Don the profit is $2.56 (or potential profit) and the 6.88% return is based on that profit figure. Again, my wording may have been a bit bad. It may have appeared I was using the Net Credit from the trade to figure the return but that is not the case.

boots

 

[boots]

momoneythansens,

<1) WLP plummets = 0% annual risk free return!>

I would agree that on the face of these the Expected return would not be much better than Govs.

My thought process is this......

1) If the stock stays where it is or goes up you get a nice easy return and spend very little time thinking about it while you are traveling around fishing.

2) the stock drops just a hair and sits between the call and the put strike. VERY little chance of this happening so while I am traveling around fishing I do not think about it much.

3) And here is the good one I hope (so far so good). The stock drops, even plummets. I buy in the now real cheap calls I sold and write new ones. The puts are in the money so I now have no downside risk and do not have the expense of buying them again so the new income raises the return. This being the case I don't worry much about the market while traveling around fishing.

You may have been able to detect the main objective in my trading plan.....hehe. The truth is if I can make 10 to 15% return on a steady basis with almost no risk and little concern about what the market is doing then I am very happy.

I also trade other strategies when I have the desire to sit here but I don't want to feel like I have to sit here all the time. We all have our own goals, mine is pretty simple.

boots

 

[Eliot Hosewater]

Quote from boots:


3) And here is the good one I hope (so far so good). The stock drops, even plummets. I buy in the now real cheap calls I sold and write new ones. The puts are in the money so I now have no downside risk and do not have the expense of buying them again so the new income raises the return. This being the case I don't worry much about the market while traveling around fishing.

boots

Let's say WLP drops to 53, where would you write the new calls?

Thanks.

 

[momoneythansens]

I would agree that on the face of these the Expected return would not be much better than Govs.

You have to assume some risk to make better returns than base and your risk here is that you tie up the money for a year with zero return or worse, something major happens to the underlying. It is this extra risk that allows you (most of the time) to gain a basis point or two above T-Bills etc.

My thought process is this......

1) If the stock stays where it is or goes up you get a nice easy return and spend very little time thinking about it while you are traveling around fishing.

So preferable in a bull/sideways market not the impending bear market mwahahahaahahaa...joke. Kind of.

2) the stock drops just a hair and sits between the call and the put strike. VERY little chance of this happening so while I am traveling around fishing I do not think about it much.

Not sure what you are getting at here. You are still long stock right?

3) And here is the good one I hope (so far so good). The stock drops, even plummets. I buy in the now real cheap calls I sold and write new ones. The puts are in the money so I now have no downside risk and do not have the expense of buying them again so the new income raises the return.

Your synthetic call (long stock + long PUT) has lost value in this scenario though. You might need to re-evaluate the validity of this adjustment approach. I haven't looked at it in detail yet. It seems MTE is on vacation LOL.

You may have been able to detect the main objective in my trading plan.....hehe. The truth is if I can make 10 to 15% return on a steady basis with almost no risk and little concern about what the market is doing then I am very happy.

That's a fair goal to aim for!

 

[trade7]

 

[Don87109]

Quote from boots:

Don,

>.............Relative to your 1st play with the 6.88% return, what strike price did you use and what is the expiration date?

My guess is that you might be overlooking the ITM amount of one of the contracts. That is, for a $75 strike "net income" would only be $2.56.>

You are correct Don the profit is $2.56 (or potential profit) and the 6.88% return is based on that profit figure. Again, my wording may have been a bit bad. It may have appeared I was using the Net Credit from the trade to figure the return but that is not the case.

boots

I went back a couple of notes and now see what you are saying. Yes you can get a 6.88% annualized return on your collar, but only if WLP is higher than $75. If WLP is lower than 72.5 then your return is zero, but you have lost the risk free interest of about 5% that you could have made with treasuries.

In summary, you are risking 5% to make an additional 1.88%. If you are comfortable with that it's okay.

Incidentally, relative to your following potential adjustment: "If the stock drops, even plummets. I buy in the now real cheap calls I sold and write new ones."

I haven't studied this, but I at a glance it does seem to improve the low end profit picture. A quick calculation says it might change the otherwise 0% worst case return to a couple % profit, maybe close to the 5% of the pure treasury play. Anybody see a flaw in this adjustment?

Don

P.S. Sorry if all this was said before, I did not read the whole thread carefully.