No/Low risk, low return option strategies?

[MTE]

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.

Quote from cnms2:

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.

Riskarb,

First, I guess I should have expressed myself more clearly. What I meant to say is that, generally, there are no risk-free trades.

Second, even though the trades were completed within seconds it doesn't mean that they were risk-free, you still had some risk while the other leg was being executed. It might have been a very low risk, but still a risk. Please, this is not meant to be an argument starter, I completely understand what you're talking about and agree that these things are possible, but as cnms2 mentioned this is not something a beginner can easily do so for beginners it is valid to say that there're no risk-free trades.

Cheers.

 

[sle]

erm, buying boxes is a way to go - you get the funding rate of return. of course, for a retail customer it is better to sell boxes, since for him it would be hard to get similar funding costs anywhere else.

 

[riskarb]

Quote from MTE:

Riskarb,

First, I guess I should have expressed myself more clearly. What I meant to say is that, generally, there are no risk-free trades.

Second, even though the trades were completed within seconds it doesn't mean that they were risk-free, you still had some risk while the other leg was being executed. It might have been a very low risk, but still a risk. Please, this is not meant to be an argument starter, I completely understand what you're talking about and agree that these things are possible, but as cnms2 mentioned this is not something a beginner can easily do so for beginners it is valid to say that there're no risk-free trades.

Cheers.

There is execution risk in any trade. They were essentially done simultaneously. The point I was trying to convey was that no market maker or liq provider will offer an arb out of altruism. Nobody gets a free lunch buffet.

In the time spread example, the back months were quoted at a dime under the front month. Mechanically, it required two trades.

A similar situation in same-strike/tenor options in COMS. PSE asking 300 with AMEX at 325 bid. There were a half-dozen of us who cleared >$1mil in a week, in total. Was there risk? Sure, but no more so than the order book queue. Much less so than in the average intermarket stock arb.

OTM long natural butterflies often trade at even or a slight credit. Indeed, the condition doesn't last long. There are ISVs that offer off-the-shelf classic arb front ends that mine/execute these conditions.

There is execution risk on any trade, whether it be a single or a multiple leg position. There is risk when placing a 112000 to sell as the market plummets to 111500 before your offer clears the queue. My point was to stress trade risk/execution.

 

[riskarb]

Quote from sle:

erm, buying boxes is a way to go - you get the funding rate of return. of course, for a retail customer it is better to sell boxes, since for him it would be hard to get similar funding costs anywhere else.

Not at a retail haircut.

 

[Maverick74]

Quote from sle:

erm, buying boxes is a way to go - you get the funding rate of return. of course, for a retail customer it is better to sell boxes, since for him it would be hard to get similar funding costs anywhere else.

You can't trade conversions and reversals off the floor for edge.

 

[IV_Trader]

Quote from Maverick74:

You can't trade conversions and reversals off the floor for edge.

 

[cnms2]

Quote from riskarb:

There is execution risk in any trade. They were essentially done simultaneously. The point I was trying to convey was that no market maker or liq provider will offer an arb out of altruism. Nobody gets a free lunch buffet.

In the time spread example, the back months were quoted at a dime under the front month. Mechanically, it required two trades.

A similar situation in same-strike/tenor options in COMS. PSE asking 300 with AMEX at 325 bid. There were a half-dozen of us who cleared >$1mil in a week, in total. Was there risk? Sure, but no more so than the order book queue. Much less so than in the average intermarket stock arb.

OTM long natural butterflies often trade at even or a slight credit. Indeed, the condition doesn't last long. There are ISVs that offer off-the-shelf classic arb front ends that mine/execute these conditions.

There is execution risk on any trade, whether it be a single or a multiple leg position. There is risk when placing a 112000 to sell as the market plummets to 111500 before your offer clears the queue. My point was to stress trade risk/execution.

Hence your forum name "riskarb" ...

 

[cnms2]

Quote from arl:

Does anyone trade or know of any no risk or very low risk strategies that can be done at the retail level, that earns higher than the risk-free rate of return (currently ~4%)? Does anything like this exist at all? There has to be some way to earn single digit returns with options, everything I see seems to be aiming for at least double digit annual returns.

Learn to graph your intended options position, then look at how it evolves over a wide range of prices, over the past year implied volatility range, over time until expiration (dividend and interest rates affect option prices too, but in a lesser measure). Ponder over the risk and reward the graph shows to you, make a forecast of the price and IV over the life of your options, write down a trading plan emphasizing how much you're willing to risk, what could be your absolute maximum loss, decide on your stop loss and exit target (price and time frame), plan on possible adjustments, then execute. Especially beginners should avoid to change their trading plans once the trade is opened.

Risk and reward are tightly connected.

 

[IV_Trader]

Quote from cnms2:

Learn to graph your intended options position, then look at how it evolves over a wide range of prices, over the past year implied volatility range, over time until expiration (dividend and interest rates affect option prices too, but in a lesser measure). Ponder over the risk and reward the graph shows to you, make a forecast of the price and IV over the life of your options, write down a trading plan emphasizing how much you're willing to risk, what could be your absolute maximum loss, decide on your stop loss and exit target (price and time frame), plan on possible adjustments, then execute. Especially beginners should avoid to change their trading plans once the trade is opened.

Risk and reward are tightly connected.

how all the above will help to erase the -expectancy for initial retail position ?

 

[cnms2]

Quote from IV_Trader:

how all the above will help to erase the -expectancy for initial retail position ?

Although opening only negative expectancy positions, your trading can still have positive expectancy through money management and correct analysis. I.e. use options as a stock surrogate, instead of chasing "no risk" positions.