Operation Oblivion

obliv·i·on

noun \ə-ˈbli-vē-ən, ō-, ä-\ : the state of something that is not remembered, used, or thought about any more
: the state of being unconscious or unaware : the state of not knowing what is going on around you

The latest attempt to develop a (nearly) bullet-proof options trading methodology...

 It's hard to be right when the market can only go one way and must do so in a certain time frame...

I will be doing forward testing on this strategy and trying to optimize it. This strategy is an index strategy in that it requires a lot of movement away from the position to be profitable. Limit orders will be used to reclaim the position once it becomes profitable so that waiting till expiration is not needed and thus even if the index was to be where this position was upon expiration it may not be affected. Eligible indexes include:

-SPX
-NDX
-VIX

And other European, Cash-settled indexes with a lot of movement. Market makers really gouge you on indexes...this is a problem. But cash-settlement makes it so these strategies cannot be destroyed by early exercise. I may have to brave the regular markets though, depending. The idea is to take a slice of the market's trading range and make it so that if, on expiration, the market is within this range the trade is a losing one. However, if it is anywhere outside the range the trade is a winner. However, since the market will move before the position expires, it can be recalled before it reaches its max value, thus making it more likely that the position will be a winning one. Time periods and recall values are to be tested.

The strategies to be used are a short butterfly and a reverse iron butterly. These strategies typically have a loss region of 12 or so pts on SPX and a win anywhere outside of that. The max loss is approximately equal to the max gain oftentimes.

HOWEVER, I could NOT get a trade that registers a profit on my profit/loss calculator. I must be doing something wrong today. I will try again. Because there's a buyer for the seller of an iron condor and a seller for the buyer of a long butterfly there HAS to be a way to implement this strategy. Maybe the volatility is too high, making this trade too expensive. Or maybe I'm just really doing it wrong.

UPDATE: I was able to get a doable trade on AAPL, but even with a wide spread (20 pts) the profit was much higher for the buyer of the butterfly spread. Now is obviously the time to SELL options, not buy them. So this trade would be good for times of low volatility, apparently. And apple isn't going to lose much more money I think so...Iron condor on AAPL would be even safer and probably highly profitable...crazy. Just because selling options is better than buying right now.

This market IS designed so you lose money if you're the herd. Wow. If one were to sell at the peak of the volatility my goodness! This is why buying puts on VIX just doesn't work well. Its time to sell when VIX spikes, and buy calls when VIX is low, even though the VIX going up is not the most likely outcome...going down is historically what it does. Very interesting. However, this system CAN be made to work if we play it right. Hmm. Might just be the perfect thing to sell an iron butterfly now and then even if it goes underwater the options will decrease in value as VIX decreases and once can correct the trade before expiration. Interesting, interesting, interesting.