wishIwasSalludon
navigator of the Narcy pirates 🏴☠️🏴☠️
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high iq people please read this cause Im not sure if Im just stupid or Ive actually came up with something. Anyways predicting the stock market is hard, like really hard so what if we can make money without predicting the stock market? Its not as stupid as it sounds lemme explain. So there are publicly traded securities called etfs, etfs exist for almost any sector(energy, finance, semiconductors) or even just tech in general. ETFs also exist for indexs(S&P 500, russel, DOW jones).
But there can be multiple ETFS for a single index, essentially the price movements of two different ETFS on the same index should be approximately the same. So I thought that we could make money by opening a short position on one index etf and then a long position on another etf on the same index. But theres a problem this strategy actually wouldnt work.
Because since the price movements for the index are approximately the same it would always result in a net loss if we were to be completely neutral and the direction of the price movement of the underlying index
if you still dont understand it can essentially be modeled like this you open 100*.9*1.1 = 99 so its a net loss
But hope is not lost, here comes options. Options have a special property to them that the more OTM an option is the lower its delta is, essentially allowing us to make money off of neutral plays.
so I thought if we have two similarly priced ETFs on the same index and two options(one put and one call) and this is important of similar price and similar delta we could make a net profit by buying both of those options simultaneously.
I made a paper trade doing this and it seems to be working
so far its a net profit of a couple hundred dollars, the only way we could lose money this way is if the market wasnt very volatile since theta would eat at the price of the options but the S&P 500 is quite possibly the most actively traded index in the world so flat price action for it is very rare
tagging people who may be interested and high iq people
@coispet @GuyFromSingapore @shabby890 @gooner23 @nigkook @SidharthTheSlayer @IAMNOTANINCEL @Shkreliii @Lethbridge @Roge @distance decay @Gengar @MilkywayDesu
Edit:
how could I not mention the highest iq user here @enchanted_elixir
But there can be multiple ETFS for a single index, essentially the price movements of two different ETFS on the same index should be approximately the same. So I thought that we could make money by opening a short position on one index etf and then a long position on another etf on the same index. But theres a problem this strategy actually wouldnt work.
Because since the price movements for the index are approximately the same it would always result in a net loss if we were to be completely neutral and the direction of the price movement of the underlying index
if you still dont understand it can essentially be modeled like this you open 100*.9*1.1 = 99 so its a net loss
But hope is not lost, here comes options. Options have a special property to them that the more OTM an option is the lower its delta is, essentially allowing us to make money off of neutral plays.
so I thought if we have two similarly priced ETFs on the same index and two options(one put and one call) and this is important of similar price and similar delta we could make a net profit by buying both of those options simultaneously.
I made a paper trade doing this and it seems to be working
so far its a net profit of a couple hundred dollars, the only way we could lose money this way is if the market wasnt very volatile since theta would eat at the price of the options but the S&P 500 is quite possibly the most actively traded index in the world so flat price action for it is very rare
tagging people who may be interested and high iq people
@coispet @GuyFromSingapore @shabby890 @gooner23 @nigkook @SidharthTheSlayer @IAMNOTANINCEL @Shkreliii @Lethbridge @Roge @distance decay @Gengar @MilkywayDesu
Edit:
how could I not mention the highest iq user here @enchanted_elixir
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