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Netgo

Option Trading Strategies

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Hello Everyone,

 

For research purposes, I am looking for any option strategy, for a bullish/bearish/fluctuating market, that produces up to 100% ROI at some probability (I'll do the calculation myself) but also has limited loss potential of up to 50% of the sum invested.

 

Does anyone know of such a strategy?

 

The closest thing I've found was the long call spread strategy, but here the profit potential equals the loss potential.

 

I would appreciate any help

 

Thanks

Netgo

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Netgo,

 

I like to buy front month, deep ITM long calls on large, liquid ETFs. If you use more than 1 ETF, the ETFs you choose are not too correlated, and you think of the group of them as a basket, it is very unlikely that you will lose 100%. I usually trade a group of 3 of them, based on momentum characteristics. My maximum profit in a month has been 60% and my maximum loss has been 60%. My average per month is 8% to 9%. On individual options, I have made as much as 120% and as little as -85%. I don't use any stops. I buy them 6 wk out and roll them or choose new ones 2 wk out. You can use just about any momentum system to do this: read David Vomund, Mebane Faber, Thomas Carr, Leslie Masonson, Ploutos on Seeking Alpha, or CXO Advisory. You need the chops to hang onto them through some wild rides, so it's best to stay small.

 

I'm not sure that one can design what you are seeking. If you add "insurance" to this type of trade to limit your loss, you are also limiting your gains. I have been speaking of directional trades. As for volatility trades, I'm hard pressed to come up with something that will fulfill your requirements, but maybe I'm just not thinking of it right now.

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I like to calendar-spread targeted, way-out-of-the-money strikes, selling weekly expirys against a months-out call that I hold as an anchor. But I also apply my Hidden Pivot Method to option pricing, since it eliminates the chore of determining "fair" value. Basically, this is just running ABCD patterns to determine where put or call prices are likely to reverse. For directional plays, I typically buy options only when I expect them to go profitable within minutes or hours. In practice, this means buying them only when the underlying is hitting one of my Hidden Pivot reversal points. The attached chart shows a target low of 0.34 for IBM Jan 26 170 puts. That's where I'd try to bottom-fish them, and the hell with fair value, Black-Scholes and all the rest. I can do the math because I was a floor trader for 12 years, but this way is much easier, since it implictly factors ever-changing supply/demand for the options themselves -- something valuation models cannot do.

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A protective collar strategy is performed by purchasing an out-of-the-money put option and simultaneously writing an out-of-the-money call option for the same underlying asset and expiration. This strategy is often used by investors after a long position in a stock has experienced substantial gains.

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