No/Low risk, low return option strategies?

[cnms2]

Quote from MTE:
Well, why not!? I didn't say that it was THE strategy to use nor did I equate "high probability" to "low risk" just pointing someone who asked for help in the direction of a thread where the person actually posts real option trades without all the bullsh*t that some other threads have. Besides the amount of risk can always be adjusted to suit the individual's level!

Vertical spreads and iron condors can be low risk strategies if used correctly, so why not....

Allow me to disagree: vertical spreads as well as iron condors in themselves can't be deemed as low risk strategies. As options positions they are not less risky than any others. optionscoah is risking 10 points to make 1, with a certain probability. Over a large number of repetitions, this is not riskier than taking the other side of these trades. Over a small number of repetitions, you can be out of luck and be hit with a string of losses from the very beginning, and be wiped out.

Risk is determined by position sizing and money management. These can be more aggressive (riskier) or neglected completely, and can result in massive losses. Also, "risk" has to be gauged in relation to its associated potential "reward".

An option beginner believing that he's using a low risk strategy may lose all his account before realizing what's happening.

The value in optionscoah's approach is in the fact that he observes his money management rules, although I didn't notice him saying how he sizes his positions. In my opinion his journal thread doesn't emphasize money management, as its intention doesn't seem to be instructional.

 

[riskarb]

Quote from cnms2:

There is no such thing as no risk options strategy for the retail options trader.

I've cleared thousands of contracts in credit long time spreads and long flies as a retail trader. Many more of the latter, when trading consecutive strikes.

 

[cnms2]

Quote from riskarb:

I've cleared thousands of contracts in credit long time spreads and long flies as a retail trader. Many more of the latter, when trading consecutive strikes.

But I don't think you're saying that those are no risk strategies.

 

[riskarb]

Quote from cnms2:

But I don't think you're saying that those are no risk strategies.

That's exactly what I am stating, as they are riskless. A guaranteed return equal to the credit with potential beyond stated-credit.

 

[kalashnicac]

Set a timeframe : say 5 years. Invest enough in risk-free bonds so that you get you get your initial lump sum back at the end.

And then use the rest for say short puts or credit bull spreads on a range of commodities. Commodities are bound to rise over the next decade, as I don't think all the increasing demand from the big rapidly-growing countries (India+China) has been priced in, at least not on a long-term basis.

Diversify in weakly-correlated commodities if you can of course.

 

[smilingsynic]

Quote from riskarb:

I've cleared thousands of contracts in credit long time spreads and long flies as a retail trader. Many more of the latter, when trading consecutive strikes.

Were these spreads legged into, or put on all at once?

 

[riskarb]

Quote from smilingsynic:

Were these spreads legged into, or put on all at once?

Legged within seconds. Nobody would offer a long time spread or a long call[put] fly at a credit, but all positions were locked within seconds... a minute, tops. There was little or no need to hedge deltas in spot, as the arbs were identified before the trades took place. Most scenarios appeared during the net/telecom bubble.

 

[cnms2]

Quote from riskarb:

Legged within seconds. Nobody would offer a long time spread or a long call[put] fly at a credit, but all positions were locked within seconds... a minute, tops. There was little or no need to hedge deltas in spot, as the arbs were identified before the trades took place. Most scenarios appeared during the net/telecom bubble.

So basically you're a good trader and know how to trade yourself into positive expectancy. Congratulations! This is not an easy feat for beginners and intermediate level traders. I guess that even for you some trades don't work, but your money management rules protect you.

 

[steve46]

Really would be nice to hear someone just tell it like it is;

Fact is, it is difficult if not impossible, for a retail trader to find a "no risk" options strategy. The opportunities to do so, appear briefly and are often "found" and arbed away by computer assisted professionals who know what to look for.

As for "low-risk" strategies, again it is very difficult for retail traders to find them. Most of the time, retail traders do not know what to look for, and then they usually hesitate to execute, and find that when they finally do pull the trigger, the position is not what they had hoped for.

A retail trader who has some chops and a decent execution platform could find some low risk opps with earnings plays, and plays on economic reports. A knowledgeable commodities trader could find opportunities related to seasonals. Bond traders can SOMETIMES find opportunities with bracket trades, but again this is difficult because the bond market is populated by pros who usually wont pay up (so the prices are not out of line very often).

The bottom line is that the relationship between risk and reward is not going away. In order to make money in this market (options) you need to excute based on your assessment of probability that something (some event) is going to happen or is not going to happen AND you have to find someone (Market maker or options trader) willing to pay you enough to make it worth your while. No free lunch.

Steve

 

[MTE]

Quote from cnms2:

Allow me to disagree: vertical spreads as well as iron condors in themselves can't be deemed as low risk strategies. As options positions they are not less risky than any others. optionscoah is risking 10 points to make 1, with a certain probability. Over a large number of repetitions, this is not riskier than taking the other side of these trades. Over a small number of repetitions, you can be out of luck and be hit with a string of losses from the very beginning, and be wiped out.

Risk is determined by position sizing and money management. These can be more aggressive (riskier) or neglected completely, and can result in massive losses. Also, "risk" has to be gauged in relation to its associated potential "reward".

An option beginner believing that he's using a low risk strategy may lose all his account before realizing what's happening.

The value in optionscoah's approach is in the fact that he observes his money management rules, although I didn't notice him saying how he sizes his positions. In my opinion his journal thread doesn't emphasize money management, as its intention doesn't seem to be instructional.

Let me quote myself: "Vertical spreads and iron condors can be low risk strategies if used correctly..."

I didn't say that they are low risk taken at face value, I said that they CAN BE low risk!

Either way, I agree with you regarding position sizing and that optioncoach doesn't really explain his position sizing approach.

Cheers.