Option Spread No Risk Trade
If your a spread trader, specifically defined risk spreads you know that in most trades your risking X dollars to make Y dollars.
Credit or Possible Gain
You sell the Marathon January 4 25 dollar call for 0.58 and by the January 4 26 dollar call for 0.28 and your credit is 0.30 or on a single contract of 100 shares you stand to earn $30.
But you risk the difference between the strikes minus the credit. So the strikes are 25 and 26, so one dollar times 100 equals 100 dollars. While the credit is 0.30 or 30 dollars. So 100 dollars minus 30 dollars is 70 dollars. So you risk 70 dollars to win 30 dollars on one contract.
No risk trade
Very rarely and usually with very little liquidity, you might earn a credit equal to the spread. This is very, very rare. But I was checking out Marathon Options after reading this article by Roland Thomas about a great Marathon Leap Options trade. The options both calls and puts don’t have much liquidity, 500-1200 contracts, but I stumbled upon a call spread with unusual bid ask spread and I was able to get a credit of 1 dollar, the exact difference between the strikes. It has low liquidity, so selling to close would be difficult, but since my credit is one dollar there’s no risk of loss, only profit or no profit if I get called out on the sold calls and do a simultaneous buy and assignment.
Here’s the trade.
I sold a call spread, strikes 21 and 22, receiving a credit of 4.70 for the 21 dollar call I sold and paying 3.47 for the 22 dollar call I sold. The credit was grossly 1.23 but it would not fill, so I gave money back to collect 1dollar credit or 100 dollars on 10 contracts. So as you can see the difference between the strikes of one dollar minus the credit of one dollar gives me zero risk on this trade, with possible win of 1 dollar times 100, or 100 dollars per contract.
Here’s the trade set-up
Here’s the credit
Here’s the no risk aspect, 1000 dollar winner if conditions are right.
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