Risk free iron condor

unless u were in the good 'ole days at the floor in a soft options pit about to release a crop report OR breach a multiyear resistance and IV is at 80 where every strike is ATM. Flies for credits ! :-)
so it has happened.. in this age of computer arbitrage prob never again....unless you leg in/out of course.
 
Risk free? I've been puzzling this one - I don't trade futures, so I must be missing something. However, can't you sell the future (in contango) and buy the spot or reverse it for backwardation for an arbitrage? All you need do is hold on till the future expires and the spread will disappear.
What am I missing?
 
Gonna defer talk about futures spreads to the experts out there (not me for sure.. lost tons of $$ on it in past life) . misterkel, I assume you are talking about futures spreads like Long May/Short June Cotton, or long Heating oil / short Crude oil. We are talking about option spreads on 1 underlying here like Long 1 condor on TSLA.
 
mushinseeker said:
Gonna defer talk about futures spreads to the experts out there (not me for sure.. lost tons of $$ on it in past life) . misterkel, I assume you are talking about futures spreads like Long May/Short June Cotton, or long Heating oil / short Crude oil. We are talking about option spreads on 1 underlying here like Long 1 condor on TSLA.
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Sure, I know it's about IC's, but I am addressing the recurrent risk-free question - i.e. - there is nothing risk-free. And asking if you can sell futures in contango and buy spot, then wait for them to come together. Can't work for futures spreads because one expires before the other, so they don't naturally meet in price. Spot never expires, so it should meet the futures price at expiry.
Could be GOLD, I suppose, but why not S&P futures vs. SPY or something like that? For all I know, TSLA has futures. GOOG does, I believe.
 
misterkel said:
Sure, I know it's about IC's, but I am addressing the recurrent risk-free question - i.e. - there is nothing risk-free. And asking if you can sell futures in contango and buy spot, then wait for them to come together. Can't work for futures spreads because one expires before the other, so they don't naturally meet in price. Spot never expires, so it should meet the futures price at expiry.
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Aside from the logistical/contractual/clearing risks, the oil storage trade could be seen as "risk free".
 
I think one way of arbing what you talked about is to buy the spot month future and take delivery of the physical commodity, pay for the storage fees,etc then sell the future in the back month and deliver your stuff then. I think that kind of trading is done more by the"trade houses" (at least in the ?? -90's) - Phillip Brothers, Amerop (in sugar), etc.
 
misterkel said:
I don't think you can buy spot oil.
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mushinseeker said:
I think one way of arbing what you talked about is to buy the spot month future and take delivery of the physical commodity, pay for the storage fees,etc then sell the future in the back month and deliver your stuff then. I think that kind of trading is done more by the"trade houses" (at least in the ?? -90's) - Phillip Brothers, Amerop (in sugar), etc.
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https://en.wikipedia.org/wiki/Oil-storage_trade
https://www.mercatusenergy.com/blog...anation-of-the-Famous-Crude-Oil-Storage-Trade

They were doing this as recently as 2015.
 
Interesting, but I'm still in the dark if you can (retail trader) buy stocks at spot and sell the futures for a riskless profit.
 
misterkel said:
Interesting, but I'm still in the dark if you can (retail trader) buy stocks at spot and sell the futures for a riskless profit.
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Yes, you can. You are right that this is actually a riskless trade, but the profit is rather minuscule. The contango used to be 10-12 ES points for 3 months, now it is only 3-4 points and sometimes it is backwardation.

So yes, a retail trader could be long the index and short the future locking in 3-4 points monthly profit, but the ROI is small.

Edit: This just gave me an idea:

If I do a covered call on the index while I am short the future, that increases the riskless trade's return. Even in there is no contango, the option premium will give me a return and I close the future trade when the stock is called away, if the calls are in the money.

A quick calculation with commissions subtracted gives about 6% annual return. Hm, that sounds to be too good for a riskless strategy...
 
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