In this article we’ll look into a real options trading strategy, like the strategies that we code for clients. This one however is based on a system unadjusted margin calculation forex a trading book. The system that we’ll examine here is indeed able to produce profits.
It does not require close monitoring. All statements with which I, of course, highly sympathize. Sell a 6 weeks call and a 6 weeks put of an index ETF. If the underlying price touches one of our strike prices, thus threatening an in-the-money expiration, buy back that option and immediately sell a new option of the same type, but to a further expiration date, and a premium that covers the loss. Wait until all options are expired, then go back to 1.
If you have a bit experience with options, you’ll notice that rule 1 describes a strangle combo. And you’ll next notice something strange with rule 2. Right, such a system can never lose, since any loss would apparently be compensated by the premium from the new trade. Have we finally found the Holy Grail, an ever-winning system? 10 in any direction until expiration. Otherwise the loss can quickly reach the thousand dollar zone.