Hi, I am trying to find an option strategy that utilizes more than one position to hedge for low risk and consistent returns. Strangles and straddles seem decent, but no move in the underlying kills me everytime by theta decay. Maybe before earnings I bet on implied volatility going up? Tried that once and got a 16% return on fomc, but I don’t know the consistency of the strategy. Double calendars seem lucrative, but what are the risks there? Seeking something more complicated than butterflies and iron condors. Maybe a combination of long strangles and iron condors, Idk. I just don’t wanna end up like a degenerate Wall Street bet user.
Trying to find a profitable hedging strategy using options
byu/Hot_South5225 inoptions
Posted by Hot_South5225
5 Comments
Simple is better. The basic iron condor with an additional contract in the direction you trust more will probably be your best bet
LMAO
You’re a bit all over the place here. What’s your actual edge that you’re trying to trade with? That should tell you what structure to use. You wouldn’t just pick structures and throw them on with no edge.
Verticals are another option. Similar thesis to calls and puts, but opposed to buying a call or put, you sell 1 and buy one.
It is in essence a low risk consistent return hedge.
Let’s say you’re bullish on Nike going into Christmas time.
So you sell a 90 put expiring December 20th, and receive a 550$ premium.
You then buy a 85$ put, for 330.
Your net return is $220. Best case scenario, you were right, Nike stays above 90, you take your premium and that’s that.
Worst case scenario, Nike foes to 85. You then have to buy at the 90 strike and sell at the 85 strike, for a net debit of 500- your premium you lose 280.
If it lands somewhere in the middle you still have your buy at 90, but obviously can sell for higher than 85, as price is above that.
Obviously this is a capital intensive strategy as well, as if you don’t have the funding to cover your short, this is not a strategy that can be utilized, but is also very repeatable and gives consistent returns with money upfront and a hedged downside.
More complex strategies are not automatically going to be more sophisticated or more profitable. Everything is priced so that if you trade a strategy blindly, you’re going to lose money. You will never outsmart a market maker playing that game.
So how do you win? By using what you have that they don’t: your worldview and your judgement. Being a trader just means refining those two things—anyone can do the other stuff. You need immense amounts of context and understanding to contribute meaningfully, and none of the existing trading platforms will support you on that journey.
What you’re saying sounds to me like a novice artist looking for the biggest paintbrush so they can become a professional painter. It’s gonna take a lot more than that. The difference is that the trading world is even more competitive.