Extreme Lotto Options Strategy
- Quick Overview: Targets extremely improbable market events with very small bets.
- Risk Management: Expect to potentially lose all investments with a risk cap of $2,000.
- Investment Size: Bets are kept within a few dollars to minimize exposure while maximizing attempts.
Strategy Description
This is a strategy that is theoretically not that risky, but in reality, we’d say it’d be best to do it with an expectation of losing everything. If you’d not like that, don’t do it.
At its core, this strategy aims to take advantage of times when something is priced at close to impossible when it’s really just highly statistically unlikely. The strategy aims to bet tiny amounts of money on extremely improbable things in times if there are reasons to justify there being some expectation of it happening.
These might be betting on extreme intraday reversals, or fast mean reversion in a trend, full-blown reversals. Things that do not happen regularly but pay off big if hit.
Bankroll Requirements
This strategy is going to be looking to keep dollar risk per position extremely small. A risk of $15 in a position would be considered very large. To the extent it is possible, we’re looking to keep risk per position to within a few dollars, allowing multiple tries at jackpot pay-offs. If the strategy lost $2,000, we’d drop it as unsuccessful.
Percentage Risk Trade
Risks will be sized small. Sometimes a trading idea will have multiple losses allocated to it in advance, and this informs the bet size. For example, we may want to bet on a 30% move in a week in a stock, sometime within the next two months, with the bet split into 8 bets on weekly options – and we factor in the net loss of this before starting.
Strategy Strengths
When combined with edges that help to predict when stronger moves or unexpected moves might happen in the market, this strategy has a high theoretical edge when we have volatile conditions – like we have of late. There are things that options chain price at a 1% or lower chance of happening that can maybe be something more like 5%. Maybe 10%.
If the options are priced at a 1% chance and there’s a way to improve that to even 2%, this can be huge. As long as the expected edge can be bet on enough times.
Strategy Weaknesses
It’s going to lose. A lot. The losses in this strategy are certain. It is not certain the big payoffs will come (We just have market conditions where weird things can happen).
The strategy should be considered a lotto of the money put into it. Just one done in a slow and structured way. It might end up only ever losing.
Benefits of Trading the Strategy
The strategy hypothetically has the chance to make big profits while always maintaining the situation of being able to be net even if only a few trades hit.
Disadvantages of Trading the Strategy
Every single trade might lose. Most of them surely will.