Your mission Jim....

[JetDollars]

Money Tree,

I alway believe that if you invest then you will be expose to some sort of risk.

Therefore, there are no risk free return in the stocks/options....market.

Please proof me wrong.....

 

[DTM]

Clues thus far:

"Risk free means having nett zero exposure. It also means there is no market movement scenario that could cause the system to fail."

"Put your money into a Bankwest account for 6% return per annum. I can't see any risks in this system"

"think see-saw"

"The mission was to eliminate risk. Derivatives are risk-limiting instruments. You are on the right track."

"A + B = C + D

risk A + risk B = total risk + return

first problem is how to get A plus B to equal zero. The second problem is how to avoid a -D when C is zero."

"The strategy is not suitable for div stripping because of the risks of exercise."

Money Tree

Apologies in advance as I won't be able to follow this thread for the next few weeks. I'm off to New York for the Traders convention starting this week and won't be able to post. This thread has been interesting and I hope our fellow forumites received some benefit from it.

I think I have worked out your method as your formula basically gives it away. I will try and better the returns and will post the results. I will test it next month with my lemon Telstra shares I received many years ago (I knew they would be usefull one day).

Thanks again Money Tree for making us think and hope everyone manages to work out a risk free system.

Until then, happy trading and hope you've got a tax problem.

 

[money tree]

Therefore, there are no risk free return in the stocks/options....market.

Please proof me wrong.....

I said something similar once. Walked into KFC and said "Colonel Sanders, you dont really use 11 secret herbs & spices. Please prove me wrong"

 

[SuperTed]

Jet tis way to early in the game to play the "reverse" card....and such a blatant one at that. ;-)

Going with the theme..........the only 0 risk trade that Im aware of is the "free trade". The free trade however started life carrying risk.

Money Tree does your trade involve synthetics?

The best ideas are often the simple ones butttttttt ;-)

 

[Mofra]

Money tree,

Thanks for getting the synapses grinding away, I'm thinking at the moment risk A & B = rising or falling underlying instrument price respectively, and with a return of 188% pa you must be leveraging the underlying instrument (if applicable).

Wih DTMs examples before I would've calculated (with the exercised scenarios) the loss on exercise (delivering on the contract at below the purchase price) in my calculations, giving my after exercise figures of $800 for the HHG example, $250 & $100 for the OST examples.

I haven't made the assumption that a zero net exposure = a delta of 0 as I don't want to limit possibilities just yet.

Just hoping to this doesn't keep me up at night thinking
Ta,


Mofra

 

[Mofra]

Money Tree,

One direct question:

Is normal time value on the options an important part of your strategy, ie. without the time value the strategy doesn't work?

Thanks in advance, I have something but the application of what I have certainly looks longer than the simple A + B = C + D clue

 

[money tree]

Time value actually is a negative. The strategy would be a lot more profitable if time decay was on my side. But the risk becomes unbearable when time decay is the main goal.

 

[SuperTed]

Time value actually is a negative. The strategy would be a lot more profitable if time decay was on my side. But the risk becomes unbearable when time decay is the main goal.

So youre a "buyer" of options

 

[money tree]

someone emailed me a strategy. I thought better to reply here:

that may work, but its nowhere near either of my strategies. I have 2 risk free strategies. one has nothing to do with stocks or options at all. that will make your head spin im sure. the option strategy is included in my course, but it was incomplete because I never give away my best strategy until I top it with another. I did that, so I gave away some clues so that only my students could put 2 and 2 together. but i guess there arent any on the forum, or they dont get it, or they did and dont want to tell everyone.

A good understanding of ACH rules will help. The strategy has a few defence mechanisms. ie, at first glance it looks like a loser but it does work. but many option traders dont know all the calculations involved, and simply discard the idea at the first hurdle.

it took me 2 years to get there, and even with clues I wont be surprised if nobody else does. I do know however that one of my students entered this trade a few months ago, and thats without all the clues. I know this because I saw the trade go through, not because they told me. Its possible that someone developed the same strategy by coincedence, but since I have not seen this trade carried out in the 6 months since I thought of the strategy, I very much doubt it. theres some more clues right there.

cheers

 

[DTM]

someone emailed me a strategy. I thought better to reply here:

that may work, but its nowhere near either of my strategies. I have 2 risk free strategies. one has nothing to do with stocks or options at all. that will make your head spin im sure. the option strategy is included in my course, but it was incomplete because I never give away my best strategy until I top it with another. I did that, so I gave away some clues so that only my students could put 2 and 2 together. but i guess there arent any on the forum, or they dont get it, or they did and dont want to tell everyone.

A good understanding of ACH rules will help. The strategy has a few defence mechanisms. ie, at first glance it looks like a loser but it does work. but many option traders dont know all the calculations involved, and simply discard the idea at the first hurdle.

it took me 2 years to get there, and even with clues I wont be surprised if nobody else does. I do know however that one of my students entered this trade a few months ago, and thats without all the clues. I know this because I saw the trade go through, not because they told me. Its possible that someone developed the same strategy by coincedence, but since I have not seen this trade carried out in the 6 months since I thought of the strategy, I very much doubt it. theres some more clues right there.

cheers

Money Tree, good to see you bring this back up in discussion. I haven't had time to look at it properly as the resource wave has been keeping me busy. I will try and put the thinking cap on as this is an excellent mental exercise which will only help my trading. Maybe all af option traders should try to figure out too. Even if you don't figure it out, you can still learn a lot by having a go at it.

Keep up the good posts.

 

[wayneL]

someone emailed me a strategy. I thought better to reply here:

that may work, but its nowhere near either of my strategies. I have 2 risk free strategies. one has nothing to do with stocks or options at all. that will make your head spin im sure. the option strategy is included in my course, but it was incomplete because I never give away my best strategy until I top it with another. I did that, so I gave away some clues so that only my students could put 2 and 2 together. but i guess there arent any on the forum, or they dont get it, or they did and dont want to tell everyone.

A good understanding of ACH rules will help. The strategy has a few defence mechanisms. ie, at first glance it looks like a loser but it does work. but many option traders dont know all the calculations involved, and simply discard the idea at the first hurdle.

it took me 2 years to get there, and even with clues I wont be surprised if nobody else does. I do know however that one of my students entered this trade a few months ago, and thats without all the clues. I know this because I saw the trade go through, not because they told me. Its possible that someone developed the same strategy by coincedence, but since I have not seen this trade carried out in the 6 months since I thought of the strategy, I very much doubt it. theres some more clues right there.

cheers

That was me who sent the email....drats....but I think it's a good strategy. Trying a couple of small positions to see.

ACH...do you mean OCH?

Cheers

 

[wayneL]

ACH/OCH

Ah! I see they,ve changed there name to Australian clearing house.

The US where I trade has different rules so I might not be able to duplicate your strategy even if I crack it.

Cheers

 

[money tree]

for those who emailed/messaged me about the course:

www.posigear.8k.com

 

[DTM]

someone emailed me a strategy. I thought better to reply here:

that may work, but its nowhere near either of my strategies. I have 2 risk free strategies. one has nothing to do with stocks or options at all. that will make your head spin im sure. the option strategy is included in my course, but it was incomplete because I never give away my best strategy until I top it with another. I did that, so I gave away some clues so that only my students could put 2 and 2 together. but i guess there arent any on the forum, or they dont get it, or they did and dont want to tell everyone.

A good understanding of ACH rules will help. The strategy has a few defence mechanisms. ie, at first glance it looks like a loser but it does work. but many option traders dont know all the calculations involved, and simply discard the idea at the first hurdle.

it took me 2 years to get there, and even with clues I wont be surprised if nobody else does. I do know however that one of my students entered this trade a few months ago, and thats without all the clues. I know this because I saw the trade go through, not because they told me. Its possible that someone developed the same strategy by coincedence, but since I have not seen this trade carried out in the 6 months since I thought of the strategy, I very much doubt it. theres some more clues right there.

cheers

wrote 20 XJO Jun05 4300.0 Call @ 63.0

Money tree,

I've just constructed a theoretical trade that looks risk free for now with a very nice credit premium. It looks very promising so far. This probably isn't what you're asking about but using your above trade details, I am able to keep at least most of the above premium (in theory). It takes a lot of margin to protect it but will have to try and work out the weaknesses and also the amount of capital required for margin.

How do you work out the percentage of profit if the trade is a net credit trade?

 

[money tree]

those xjo calls I wrote is a direction pick and definately not a risk free trade. hope nobody thinks that.

"How do you work out the percentage of profit if the trade is a net credit trade?" "It takes a lot of margin to protect it..."

so its a written position with a net credit. but then risk margin kicks in. still a credit? if its risk free, wouldnt risk margin be zero?

well DTM, I do believe you are nearly there.

 

[DTM]

those xjo calls I wrote is a direction pick and definately not a risk free trade. hope nobody thinks that.

"How do you work out the percentage of profit if the trade is a net credit trade?" "It takes a lot of margin to protect it..."

so its a written position with a net credit. but then risk margin kicks in. still a credit? if its risk free, wouldnt risk margin be zero?

well DTM, I do believe you are nearly there.

Risk margin is zero, but what I meant was you would have to have a lot of capital for margin requirements. A lot more than what I use. My knowledge for margin requirements are limited so I will have to actually do some homework to find out more.

 

[money tree]

congratulations.

you are at the first of 3 hurdles.

 

[DTM]

congratulations.

you are at the first of 3 hurdles.

I can't even get over the lack of capital hurdle to begin with...


But my normal trading has better returns although immensely enjoyed the mental exercise.

Just out of curiosity, are the hurdles strategic or rules based? Those mental exercises were hard enough, more thinking than what I'm used to and don't really want to over exert myself again unless the challenge hasn't been met.

Daniel

 

[money tree]

"But my normal trading has better returns.."

normal trading aka taking big risks and spending many hours researching, charting, lost sleep, stress, watching screens......

then theres passive cashflow from risk free investing. no risks, little time involved, no lost sleep, plenty of time to work or travel the world (which I plan to do shortly) and returns are stable and consistent.



"...are the hurdles strategic or rules based?"

2 strategic, 1 rules

 

[DTM]

"But my normal trading has better returns.."

normal trading aka taking big risks and spending many hours researching, charting, lost sleep, stress, watching screens......

then theres passive cashflow from risk free investing. no risks, little time involved, no lost sleep, plenty of time to work or travel the world (which I plan to do shortly) and returns are stable and consistent.



"...are the hurdles strategic or rules based?"

2 strategic, 1 rules

Very good point Money tree.


Day trading does get boring after a while, and that travelling round the world while you're making money sounds too good to be true. :bandit: Drinking magherita's on the pacific coast of mexico while making money is the way to go.


When I get enough money behind me, I will really have to think hard...