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New Option Strategy
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New Option Strategy

  #1 (permalink)
Trading Apprentice
Kolkata , India
 
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kkjalan's Avatar
 
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New Option Strategy

Hi All,

I was working with option, looking for a arbitrage opportunity, then this stuck me!

Legs in the strategy:

1) Long Stock,

2) Long ATM Put

3) Short Call at same strike.

Second and third leg actually are synthetic short stock.

the payoff is a straight line representing net profit or loss across various levels of market.

Please advice am I missing something.

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  #2 (permalink)
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  #3 (permalink)
Membership Revoked
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kkjalan View Post
Please advice am I missing something.

Hi

Yes you do!

You miss how to use an analyzing option strategy software which would give you the answer to your question. One of the biggest mistakes from so called: Want to be option strategy traders.

Take care

Delta_Panther

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  #4 (permalink)
Trading Apprentice
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Delta_Panther View Post
Hi

Yes you do!

You miss how to use an analyzing option strategy software which would give you the answer to your question. One of the biggest mistakes from so called: Want to be option strategy traders.

Take care

Delta_Panther

Hi Delta,

I have created my own little soft in which u can test a strategy with respect to to underlying price, volatility, time.

also i have tested my strategy on various option strategy software.

But why do you say " biggest mistakes from so called: Want to be option strategy traders" ????


Last edited by kkjalan; February 26th, 2012 at 08:03 AM. Reason: typo
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  #5 (permalink)
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radioactive


kkjalan View Post
Hi All,

I was working with option, looking for a arbitrage opportunity, then this stuck me!

Legs in the strategy:

1) Long Stock,

2) Long ATM Put

3) Short Call at same strike.

Second and third leg actually are synthetic short stock.

the payoff is a straight line representing net profit or loss across various levels of market.

Please advice am I missing something.

I think I have tried just about every option strategy out there. None consistently make money. The option valuation models favor the market makers. Maybe. You do not give enough detail about your strategy ( like expiration periods) to judge it's profitability. But I think it will not make money. Once price jumps above the strike price ( and premium) you lose and if you liquidate, delta has you in a losing trade.

That said, I have modified an option strategy call "RadioActive" (decay). I have a wide ITM 5 to 6 month long put. I sell weekly slightly OTM calls. And of course I am long the stock or ETF.

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I have consistent profits as long as I trade against the short strike price; meaning I go long enough stock to cover my call. Because once price jumps the short strike price, you hold a losing hand. And if price stays above my short strike, I write another slightly OTM call for the next weekly series.

This position I must trade the ETF against the strike price: 17

My above position: I have been writing calls against this position for 4 months. I traded against the strike price many times, then price has been heading south for the last two months and I have just written calls constantly. My March puts now only have intrinsic value, so I will put the stock on March 16th to recover my loss on the stock. And keep the profits. A large accumulated profit.

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  #6 (permalink)
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I have the same frustration with option spreads particularly calendars after four years. The vegas most always get skewed to the negative p/l when the market gyrates day to day. Some guy in another forum claims he could take quick profits off of calendars and ic's by taking them off in a short time period, sometimes even a day or hours. Maybe it was just a claim.

I'm beginning to think might as well just day trade single options , puts&calls, on stocks or stock indexes like the OEX. Just daytrading with a different form of leverage..

Thanks for the "radioactive" strategy.


Last edited by Cloudy; February 26th, 2012 at 01:50 PM.
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  #7 (permalink)
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Cloudy View Post
I have the same frustration with option spreads particularly calendars after four years. The vegas most always get skewed to the negative p/l when the market gyrates day to day. Some guy in another forum claims he could take quick profits off of calendars and ic's by taking them off in a short time period, sometimes even a day or hours. Maybe it was just a claim.

I'm beginning to think might as well just day trade single options , puts&calls, on stocks or stock indexes like the OEX. Just daytrading with a different form of leverage..

Thanks for the "radioactive" strategy.


Tiberius View Post
I think I have tried just about every option strategy out there. None consistently make money. The option valuation models favor the market makers. Maybe. You do not give enough detail about your strategy ( like expiration periods) to judge it's profitability. But I think it will not make money. Once price jumps above the strike price ( and premium) you lose and if you liquidate, delta has you in a losing trade.

That said, I have modified an option strategy call "RadioActive" (decay). I have a wide ITM 5 to 6 month long put. I sell weekly slightly OTM calls. And of course I am long the stock or ETF.

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


I have consistent profits as long as I trade against the short strike price; meaning I go long enough stock to cover my call. Because once price jumps the short strike price, you hold a losing hand. And if price stays above my short strike, I write another slightly OTM call for the next weekly series.

This position I must trade the ETF against the strike price: 17

My above position: I have been writing calls against this position for 4 months. I traded against the strike price many times, then price has been heading south for the last two months and I have just written calls constantly. My March puts now only have intrinsic value, so I will put the stock on March 16th to recover my loss on the stock. And keep the profits. A large accumulated profit.


Thanks for the suggestions!

@Tiberius all my options are near month expiry.

Theoretically Spot + premium paid for Put - Premium recd for call should be equal to Strike Price.

But in Live market (I mean India Market) at certain times this equilibrium is broken only to be restated back after few seconds or so.

There I was thinking of installing a automated trading system for this strategy, which will enter the market when there is a arbitrage opportunity and exit soon after the window is closed out by order filling.


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  #8 (permalink)
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trade


Cloudy View Post
Thanks for the "radioactive" strategy.

With my strategy. There is an initial calculated risk that must be drawn down in four to five weeks. Another risk is the opening gap, it must be accounted for with market perception. And to do my strat, you need to know how to trade. And my IB account costs $ 0.10 to call or put 100 shares. Most options have an average commission of $1.00 per option traded. Shares are $ 0.50 per hundred. A person named Zsike is trading this strat in her journal.

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  #9 (permalink)
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arb


kkjalan View Post
There I was thinking of installing a automated trading system for this strategy, which will enter the market when there is a arbitrage opportunity and exit soon after the window is closed out by order filling.

If it is arbitrage, then go for it. I have only done arbitrage with takeover stocks.If you have a live example of your arbitrage option strat, then please post it. Most interested. Thxs

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  #10 (permalink)
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Tiberius View Post
If it is arbitrage, then go for it. I have only done arbitrage with takeover stocks.If you have a live example of your arbitrage option strat, then please post it. Most interested. Thxs

Will post working on one scrip basis tomorrow's market.

Thanks
Krishna Jalan,

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