Dave(s) et al,
Wonder what your take is on the following strategy:
In this period of market uncertainty (and near panic) many folks are looking for a place to hide. A totally fail safe method of profiting in down, sideways, and even up markets as well, can be found by using diagonal spreads in the SPX. An anomaly in options pricing exists in the premiums of deep ITM far out SPX puts. They have very little time value in their premium. In some cases they even sell at a discount! By purcasing a long put over 100 points ITM and selling a nearby put ATM or slightly higher, one is able to gain the rapid decay in the current cycle's option while experiencing little or no deterioration in the long option. If the market falls, the long option will improve in price point for point with the index drop. The short option will increase in value as well, but the time value in it will disappear by expiration. This will result in a net gain on the spread. At the end of the cycle, the short can be rolled forward for a net credit or the total position closed out at a profit. If the market stays in roughly the same price range, the short option will expire worthless, also generating a profit, since the long option will experience minimal price decay. If the market rises, it will have to do so by the number of points received for selling the short option before any potntial loss is threatened. At current premiums, that is about a 30 point gain. Should such a situation arise, it is a simple matter to roll the short put up to a strike 25 points higher and pick up an additional credit. As the roll ups occur, the long put begins to gain time value premium and decays at a slower rate than the index rises, so profit potential is increased. A win/win/win strategy. |
