Non directional option strategy

[grass_hopper]

Hello All,

I found this strategy while doing some research on covered calls:
http://www.optioneducation.net/select/downloads_direct/qqqDirect/CISDM_QQQActive_Full.pdf

They say it would average 10%/year over a period of 10 years. Pretty good results. I wonder if it is worth to pursue this strategy or there is something in it that may not work in the next 10 years.

What would be the right account size for it?

Thanks

 

[grass_hopper]

I guess 10%/year is not worth it since no one replied to my post.
Ok, another question. Has any one tried selling short term (weekly) wide strangle (3-4 strikes) against long term (6+ month) narrow strangle(1 strike) or straddle?
The objective is to buy time value wholesale (6+ months) and sell it retail (weekly). The position may be adjusted up or down depending on the underlying stock movement.

 

[anley]

10% is not really worth it trading options, far too much hassle for the return. Plus, whatever strategy you do has to overcome the costs, mainly the bid offer + illiquidity issues. Unless you have the best access and know how to leg in to some of the strategies (to reduce costs) I'd bet the strategy breaks even at best.

Same with your straddle strategy, the costs will probably erode away all the profit.

Another way to think about the problem is 10% of what? If you have a minimum of £1million then maybe 10% is worth it but if you have 'only' £100,000 the 10% is of course £10,000 and there's probably more money to be made working at McDonalds, and with no risk.

 

[grass_hopper]

Thanks for replying, Anley.

The liquidity is not much of a problem with QQQ options. They are quite liquid and spreads are narrow. I am more concerned about a flat period (2002-2007) in the study where the strategy returned around 1% a year.

 

[anley]

I am more concerned about a flat period (2002-2007) in the study where the strategy returned around 1% a year.

Yes, QQQ will be no problem as far as liquidity goes but what about the bid-offer. I haven't looked at the prices for a long time but I seem to remember they were always about 5 cents. 5 cents at anything under $5 is too much, ie those costs will eat away at your capital.

I'm not saying you are but NEVER DISCOUNT THE ROLE THAT COSTS PLAY IN THIS BUSINESS. For many, costs are the difference between making and losing, not getting the direction wrong......

 

[grass_hopper]

Right now the spread on Nov-11 ATM (or near-ATM) QQQ options are 1-2c. It is about 7c on Mar-2012 but those are only purchased once in 6 months or so.
The transaction costs are low to negligent if we trade a minimum of 10 contracts. ($15 at tradeMONSTER or $10 at Options House).

 

[grass_hopper]

markotrader,

I don't know how binary options work. The strategy is build around the assumption that a sum of premiums received for short term options is greater than a premium for long term options.

For example, today Nov'11 59 QQQ calls were trading at .23 while Mar-30-12 58 calls were at 3.46. There are 20 weeks between now and March expiration. If we buy Mar'12 calls and keep selling weekly calls against it, we should get (0.23*20-3.46)=1.14/share (or 114/contract) before commissions if QQQ stays in 57-58 range at every Friday.
If QQQ goes above 59 and stays there, the value of the Mar'12 call will increase thus increasing total return. If it drops, we may have to roll the whole position down.
Add a similar put spread to trade from both sides.

Instead of buying Mar'12 call one may buy QQQ shares and put option for the same expiration time. Makes almost no difference.

As for option broker, there are plenty that offer regular options and not just binaries. CBOE | Chicago Board Options Exchange have links to several paper trading tools.

 

[achimutz]

Hi
trading Covered Calls in this market, is a good way to make some money. I am doing it for 1 year now and I must say that is the only Strategy that worked for me.
Overall After I loosed some money with other strategies I start using the Covered calls only and I am slowly recovering. like 3%+/Month (I had one stock that gived me 8% in a month).
Even with covered calls I recommend to use low volatility stocks and to chose wisely. I am paying a subscription to help me choosing the stocks and also learning all the tricks of the trade (very happy with the subscription that I have). in last 5 months I recovered from my 26000$ to 30.000$+
With this strategy you don't get rich today, but for people that don't have time to watch the market every day is the best.

If you want to find out more you can email me to [email protected]

Cheers
Radu

____________________________________________________

I found this strategy while doing some research on covered calls:
http://www.optioneducation.net/select/downloads_direct/qqqDirect/CISDM_QQQActive_Full.pdf

They say it would average 10%/year over a period of 10 years. Pretty good results. I wonder if it is worth to pursue this strategy or there is something in it that may not work in the next 10 years.

What would be the right account size for it?

Thanks