Scratch that. I realized that the CC caps the gain of the position, so if the market rallies, the losses in futures won't be hedged with the long stock. Nevermind, carry on...
Risk free iron condor
- Thread starter hurricane_sh
- Start date
Scratch that. I realized that the CC caps the gain of the position, so if the market rallies, the losses in futures won't be hedged with the long stock. Nevermind, carry on...
Why wouldn't these kind of trades be busted?
You're missing the cost of holding the physical when contango... I assume you are talking about commodity futures?
And there's no real backwardation in say ES... if there is... it's because of dividends (in absence of neg rates).
Nothing is free... there are costs involved that you have not thought of... and therefore it's not a risk-free strategy.
Last edited:
Mate.. you need to go back to school...
That "backwardation" in ES is just because of dividends. As a matter of fact, those dividends are usually discounted so when you would buy the future and sell all the underlying stocks you will actually lose money, since you need to cough up the full dividend on your short stocks and only 'receive' about 70-80%....
There is no real backwardation in index futures... unless there's a massive short squeeze in most underlyings and the stock lending rates are big... which in effect will be a cost to this strategy and again.. no money to be made... THERE IS NO RISK FREE.......
Backwardation in commodity futures is more common, but usually arises when there is a shortage in physical so the spot price jumps... again... there's no way you as a retail trader can benefit since I'm pretty sure you're not allowed to hold or short physical commodities...
Also... you covered call ( long spot and short call) with a short future basically means you're not covered... just short a call and in a spot-vs-future spread (EFP). Definitely not risk-free...
Sure there is backwardation in ES (at least there was in 2015 and earlier), that is what I learnt not in school, but on the internet:
https://www.quora.com/Are-S-P500-fu...through-most-of-their-history-Why-if-possible
"Actual ratio of observable futures right now is 1.32% - the difference between current spot of 1898 and Sep 2016 future at 1873. The small difference between observable ratio of 1.32% and our expected backwardation ratio of 1.42% can be explained by normal bid-offer spreads, intraday market volatility, sentiment with respect to reliability of projected dividend yield, etc."
"Generally, it depends on a current level of interest rates and present dividend yieldfor S&P500. Because, normally, interest rates in the United States were higher than dividend yield, at least since 1980, the prevailing structure of equity futures was in contango. Starting with 2008 however, interest rates have dropped to near zero levels, while dividend payout ratios have risen, thus resulting in backwardation of S&P500 futures."
Not to mention I freaking remember when the futures were lower than the spot.
https://www.quora.com/Are-S-P500-fu...through-most-of-their-history-Why-if-possible
"Actual ratio of observable futures right now is 1.32% - the difference between current spot of 1898 and Sep 2016 future at 1873. The small difference between observable ratio of 1.32% and our expected backwardation ratio of 1.42% can be explained by normal bid-offer spreads, intraday market volatility, sentiment with respect to reliability of projected dividend yield, etc."
"Generally, it depends on a current level of interest rates and present dividend yieldfor S&P500. Because, normally, interest rates in the United States were higher than dividend yield, at least since 1980, the prevailing structure of equity futures was in contango. Starting with 2008 however, interest rates have dropped to near zero levels, while dividend payout ratios have risen, thus resulting in backwardation of S&P500 futures."
Not to mention I freaking remember when the futures were lower than the spot.
Can you re-read my post regarding dividends? "That "backwardation" in ES is just because of dividends"
Me saying there's no backwardation, I meant that normally backwardation is due to underlying physical being in high demand driving up the spot... this 'backwardation' in equity indices is due to a financial gimmick... dividend... intraday volatility is a non-argument since that will be instantly arbitraged and there's no way you as retail can do anything in there.
Still.... no free lunch...
This guy would like to respectfully disagree:
http://www.options-trading-mastery.com/risk-free-option-trading.html
Risk free will never give a huge return, nevertheless there are risk free trades. In the above guy's example the riskless profit is 1% ROI.
Without looking at it (will do later)... I respectfully say that that guy is an idiot... 
Anyone with a website called "options mastery" where they try to sell you stuff is a fraud
EDIT> I just glanced at the website... do I really need to spend time to debunk his claims? Really? You don't think just looking at the website give it away? Back in the 1700's this was called a snake-oil salesman selling 'miracle elixers'.
Anyone with a website called "options mastery" where they try to sell you stuff is a fraud
EDIT> I just glanced at the website... do I really need to spend time to debunk his claims? Really? You don't think just looking at the website give it away? Back in the 1700's this was called a snake-oil salesman selling 'miracle elixers'.
Last edited:
okay here we go... (I actually commented on this website ages ago)..
He claims this: "The market price of XYZ is currently $61.35. You buy 1,000 shares and simultaneously sell 10 x $60 call option contracts, receiving a premium of $4.90 per contract, or $4,900. You also buy 10 x $60 put option contracts at $3.10 per contract (they are 'out of the money' therefore cheaper) which costs you $3,100. The overall credit is $1,800."
That's a totally correct calculation of one thing that will never ever going to make you decent money...
He claims the synthetic stock can be sold at 61.80 and simultaneously the stock be bought at 61.35
He just conveniently forgets to tell his scammed clientele that this also costs money... something called interest...
Total investment = 59.55 for a payout of 60 at expiry... so that's 0.755% which is probably just the common interest rate used in derivatives pricing, which usually is lower than you would get on a small savings account.
So while it does seem risk-free... if you include transaction cost, you're better off putting it in a savings account... therefore... what's the point???
And... when he later points to trading a CFD instead of stocks... so your initial outlay is only 5%... CFD's have interest calculated into them so again, no point since that CFD would trade around 61.80 instead of 61.35 anyway...
He claims this: "The market price of XYZ is currently $61.35. You buy 1,000 shares and simultaneously sell 10 x $60 call option contracts, receiving a premium of $4.90 per contract, or $4,900. You also buy 10 x $60 put option contracts at $3.10 per contract (they are 'out of the money' therefore cheaper) which costs you $3,100. The overall credit is $1,800."
That's a totally correct calculation of one thing that will never ever going to make you decent money...
He claims the synthetic stock can be sold at 61.80 and simultaneously the stock be bought at 61.35
He just conveniently forgets to tell his scammed clientele that this also costs money... something called interest...
Total investment = 59.55 for a payout of 60 at expiry... so that's 0.755% which is probably just the common interest rate used in derivatives pricing, which usually is lower than you would get on a small savings account.
So while it does seem risk-free... if you include transaction cost, you're better off putting it in a savings account... therefore... what's the point???
And... when he later points to trading a CFD instead of stocks... so your initial outlay is only 5%... CFD's have interest calculated into them so again, no point since that CFD would trade around 61.80 instead of 61.35 anyway...
Last edited:
Stop being an idiot, the debate is about if there is a risk free trade or not. Nobody said or expected a risk free trade making gazillion returns, nevertheless there are risk free trades.
Not to mention you are attacking the guy services instead of his argument. Now once you go back to option school, you will learn that he was talking about collars. A collar with stock can be set up for credit (risk free) or if you pick a dividend paying stock, you can still lose money on the set up but overall because of the dividend you will end up ahead.
I have been trying out what the guy said and have found plenty of stocks where there is little gain with the collar. Sure, there isn't much profit either, but that wasn't the point. If I set up a collar on the SPY for a year, I get 2% in dividend. Tomorrow when the market is open I can quote you a few....