NEW YORK TheStreet -- It can be a winning strategy to sell uncovered or unhedged at-the-money short-term puts, then wait until maturity and repeat the trade. Investors comfortable with the risk of equities can beat the index in the long run by exploiting a flaw in the classical option theory. Note that with the levered strategy below you can theoretically lose more than the capital invested -- think about it carefully. So why tell you this? I can hardly think of anything simpler.

That's why I don't feel I'm revealing any substantial trade secret. GoPro Stock Is Still Attractive -- if You're a Short, That Is.

Option Investor: Monthly Cash Machine Tutorial

This strategy is different from the core strategy of the start-up hedge fund I'm running, and the current market regime might not be ideal to begin implementing this strategy. Or perhaps I'm just telling you this because I don't want too many people to bash front-end option premiums.

Figures 1 and 2 compare the strategy's evolution since March vs. To make our results easy to reproduce, we ignored interest rates and dividends.

The monthly strategy is slightly better at 0. Large investment bank, Bloomberg.

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For the period , the one-week at-the-money implied volatility was estimated through a linear regression against one-month implied and day historical volatilities.

It Is Not Different This Time; Updating My Bond Short View: The 'flight to safety' exchange-traded funds for U.

Treasury bonds, gold bullion, and dividend-rich utilities remain viable asset allocation choices for diversified investors. The bulls continue to control the global markets, but all nine global averages do not have positive weekly charts and the leading averages have become overbought.

GoPro Stock Is Still Attractive -- if You're a Short, That Is This strategy is different from the core strategy of the start-up hedge fund I'm running, and the current market regime might not be ideal to begin implementing this strategy. What makes this strategy interesting in my opinion is that: It exploits a flaw in classical option pricing theory. Monthly strategy blue line vs. Eat Your Heart Out Figure 3 shows the weekly strategy with an option leverage factor of 2. Note that with the levered strategy you can theoretically lose more than the capital invested.

At Ogee , however, we like to know why a particular strategy works and have some assurance that it will continue to work.

As every good option trader knows, the price of a short-term at-the-money call or put is approximately: This proxy is classically derived using a first-order approximation of the Black-Scholes formulas. See my book on options for more information: Bossu and Henrotte, An Introduction to Equity Derivatives: What intrigued me is the root-time order of the formula: Why should this at all be intriguing?

Why Hulu Shouldn't Be Silent This August So the root-time behavior of Equation 1 suggests that repetitively selling naked at-the-money options is more lucrative with short-term expiries than long-term expiries, as previously empirically verified. The implication is that classical theory fails to properly price very short term at-the-money options.

A Simple Options Trading Strategy That Beats the S&P - TheStreet

Has the Auto Industry Peaked? The good news as far as our put-selling strategy is concerned is that this flaw isn't really news: This article is written for educational purposes and does not constitute investment advice or a solicitation to invest in any security offered by Ogee.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. Action Alerts PLUS is a registered trademark of TheStreet, Inc.

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Jun 7, 7: Jun 6, 7: Jun 5, 7: The Stock Market Has Been Amazingly Resilient -- Check Out These 10 Charts The bulls continue to control the global markets, but all nine global averages do not have positive weekly charts and the leading averages have become overbought. Jun 2, Costco Sees an Extremely Damaging Flush In Aftermath of Amazon's Big Whole Foods Deal.

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