My Math Forum How to Always Beat the Stock Market (not a joke)

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 November 24th, 2015, 12:17 PM #21 Global Moderator     Joined: Nov 2006 From: UTC -5 Posts: 16,046 Thanks: 938 Math Focus: Number theory, computational mathematics, combinatorics, FOM, symbolic logic, TCS, algorithms So it ties up cash and has risk. That doesn't mean it's a bad deal, but it needs analysis to determine how good of a deal it is. I hope it's a good one and you can make some money here!
 December 3rd, 2015, 02:49 AM #22 Newbie   Joined: Dec 2015 From: Slovakia Posts: 4 Thanks: 0 "Of the \$15,000 in cash required to buy back the shares you have \$5,000 which you received from being assigned. The remaining \$10,000 can be obtained by selling ten \$5 calls, but in reality, you'd actually be able to get more like \$10,050 assuming a mere \$0.05 extrinsic value on the calls, so you'd be up \$50 more dollars. Crisis averted!" you have a mistake in the text above. When you sell next ten 5\$ calls, you didnt receive 10 000\$, but only 5 000\$. Am I right? Last edited by CRGreathouse; December 3rd, 2015 at 07:16 AM.
 December 3rd, 2015, 11:06 AM #23 Newbie   Joined: Dec 2015 From: Slovakia Posts: 4 Thanks: 0 and do you know why are you receive more $than is maximum loss? It is becouse you will be assigment on the call option in Ex-Dividend date and you will be short in stock. And it means that you have to pay a DIVIDEND!! December 12th, 2015, 08:33 PM #24 Senior Member Joined: Jun 2014 From: USA Posts: 525 Thanks: 40 Quote:  Originally Posted by tradermartin92 "Of the \$15,000 in cash required to buy back the shares you have \$5,000 which you received from being assigned. The remaining \$10,000 can be obtained by selling ten \$5 calls, but in reality, you'd actually be able to get more like \$10,050 assuming a mere \$0.05 extrinsic value on the calls, so you'd be up \$50 more dollars. Crisis averted!" you have a mistake in the text above. When you sell next ten 5\$calls, you didnt receive 10 000\$, but only 5 000\$. Am I right? No, you are wrong. If stock is worth \$15 a share and you sell options that allow people to buy it from you for \$5 a share, those options are going to be worth at least \$10 per option (American style). Option contracts are for 100 shares, so that is \$1,000 per contract. 10 contracts yields a minimum of \$10,000. There is no problem with the math.

December 12th, 2015, 08:40 PM   #25
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 Originally Posted by tradermartin92 and do you know why are you receive more \$ than is maximum loss? It is becouse you will be assigment on the call option in Ex-Dividend date and you will be short in stock. And it means that you have to pay a DIVIDEND!!
I fully understand that call options are sometimes exercised prior to a dividend.

The position has four legs, so if you want to get technical don't forget the possibility of being assigned on puts either, because to execute the position you need to sell both a call and a put.

You also buy a call and a put. Taken together, you are protected from any price movements in the stock. The danger arises from being assigned early with American style options (this danger is not present for European style) and not being around to fix your position prior to a broker stepping in. A broker would presumably not sell more calls (or puts as the case may be) to correct the position properly.

Taken together, your above two comments show that you have entirely misunderstood the position. I've executed this position successfully, though I'll add I prefer to try and set it up where the strike price of the short calls is higher than the strike price of the short puts (think that one through), so that the option requirement is stable.

 December 14th, 2015, 11:18 AM #26 Newbie   Joined: Dec 2015 From: Slovakia Posts: 4 Thanks: 0 OK, I ask once again: are you trading this "riskless" strategy succesfully? Are you really earning continuosly some money?? ...because I think that such a effectiveness cant exist in option market
December 15th, 2015, 05:05 PM   #27
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 Originally Posted by tradermartin92 OK, I ask once again: are you trading this "riskless" strategy succesfully? Are you really earning continuosly some money?? ...because I think that such a effectiveness cant exist in option market
If all options were European it would truly be a riskless strategy, which is clarified above, but in the U.S. using the European style DJX I haven't been able to initiate the position (or if so, with so little profit it was negated by broker's commissions).

With American style options, you run the risk of being assigned early. I work and can't really monitor my positions enough to make sure I would be around in the event of an early exercise to properly correct it. If I was a day trader, however, I would be doing this all day long.

The position is very easy to initiate if the call that you sell is deep in the money, but that increases your chances of getting assigned early and creates more fluctuation with your option requirements, so there is a trade off. For more conservative positions it's not as easy and the profit margins decrease, but for someone like me who can't really monitor all the time, that's probably the way to go if you want to remain more risk-free. For position you really don't have to monitor, you simply sell the call at a strike higher than the strike at which you sell the put, which also creates a stable option requirement, but it's really difficult to initiate these even with American style options.

So far I have been successful, yes. Try it and see for yourself.

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