Risk Free Challenge!

[JackRab]

What's with all the risk-free stuff people have been dumping on ET? Risk-free condors, future vs spot... etc.

I challenge anyone to give me a real example at tradable prices as an instant trade (incl transaction costs)... so not legging into it by waiting to get hit on the other leg(s).

Outside of sheer luck... there are simply NO RISK FREE opportunities! There is always a reason for something to appear to be risk-free... and there are probably costs involved which you don't know of.

The only possibility that's a frequent one is on expiry days when people want to sell their ITM options and if you're quick enough you might be able to buy that at a 1-5 cent under parity, if you're quick enough with the delta hedge in underlying.

 

[ajacobson]

Jack,

The poster finally acknowledged they weren't live quotes.

If you are paying a bounty I vote for European Index Boxes. Not much return, but risk free.

Hat or a shirt ?

 

[JackRab]

Negative rates... so yeah.. you've kinda got me there... (damn) unless you also have negative interest rates to pay to your bank for them holding your money... is there really anything there.

Also... transaction costs might just be the difference to making anything or losing... especially for retail.

 

[ajacobson]

It used to be a enormous business in the SPX as cash management and the income came in as capital gain. If you had capital loses on your books it was "tax free" income.

I'll come to Sydney and reach out for my shirt.

 

[JackRab]

It used to be a enormous business in the SPX as cash management and the income came in as capital gain. If you had capital loses on your books it was "tax free" income.

I'll come to Sydney and reach out for my shirt.

All right... look, I've traded lot's of silly risk-free stuff.. also in size... but those possibilities are never ever going to be available to retail...

I used to be called by a broker every expiry, on Thursday or the Friday, who's client, based on taxation issues, wanted to sell ITM calls or puts half a cent or 1 cent under parity... in size, like 10k or 20k options. With fees of about 1/10th of a cent those were brilliant... no risk whatsoever... but that's not happening for 98% of the people on this forum.

 

[ajacobson]

When you have a chance google "Jon Jacobson" (no relation) now at Highfield, but used to run the short premium book at the Harvard Endowment. Was what we used to call first turret button at most of wall street houses. Sold lots of very low priced puts - not randomly - and obviously not risk free, but a great success story. On a volume basis he was the biggest customer of the CBOE and AMEX for years. Profitable even through 10/87. There are still a handful of articles out there. Now that Heff is gone he's my last living idol.
Too long of a tale to post here.

 

[Sig]

In general you're completely correct, although I'd throw in that you have to clear the risk free rate to be true risk-free arbitrage. I don't have a concrete example to get the hat on this one, but one potential example, especially now with Timber Hill leaving IB, would be opportunities to be on the other end of IB's autoliquidation algorithm. In my one and only autoliquidation experience with them someone picked up a risk free vertical spread at a very nice profit because IB wasn't smart enough to understand the max possible loss of a credit spread and closed some of mine using a market order (or worse they were smart enough and TH was on the other side). Obviously probably not something possible to do at size and with any regularity if you're anyone but Timber Hill with access to IB's algorithm, but I'm guessing they do a bunch of autoliquidations on option expiration day probably at exactly the same time for all the accounts that don't have enough margin to take delivery of the underlying, so if you programmed for that you may be able to pick up a few wins a week?

 

[ajacobson]

Good point though not really risk free. They took a $$22 million hit prior to exiting.

 

[Sig]

Good point though not really risk free. They took a $$22 million hit prior to exiting.

The transaction would be risk free. I'd say that Timber Hill losing $22M while having access to captive order flow from IB indicates that apparently IB group hires the same quality employees across the enterprise and not just in their "customer service" division, but I have a chip on my shoulder so maybe it's just tough conditions for market makers combined with a lack of investment by IB over the past 5-7 years.

 

[Pekelo]

Challenge accepted. But before I post the trade, what do we win? Also, even if I just make 1 (one) dollar riskless (or 0.0001% on ROI), the challenge will be considered won, correct? After all, nobody should expect millions risk free.