NDX trade: can it keep your house from sliding into the ravine?

Try talking to your contractor about this one?

Some friends of our family got an estimate of $300,000 to shore up their house from sliding into the ravine behind the house. (It doesn't look nearly this bad, but $300K to fix, still.)

It turns out that our friends have enough funds from another real estate sale to fix their own place, but if you did (or if you do) have something similar, what could you do about it?

The NDX monthly options, for traditional reasons, don't last until the end of day Friday of their expiration day. Instead, they settle based on the symbol NDS, which is the daily settlement value of NDS. It's valued whenever the 100 stocks in the index have their opening trade, usually in the first 30 minutes after opening (i.e. just before 7am Pacific time.)

There was a study published on Tastytrade showing that trading this NDX settlement overnight with a "1 standard deviation iron condor" (example/details below) ... works 91.7% of the time (i.e. 12 for 13). I've since verified that for myself; I traded this one weekly until Nasdaq removed it from all but the monthlies last February ...

In the couple of losses I've seen on this trade, I've never seen it go very far "into the money", especially after I "widened the wings" of my condor trades.

Given all this ..

It struck me that it made sense to risk even more on this trade that I have been doing. So I risked $30,500 on this trade:

• short the 7060 put
• long the 6990 put
• short the 7250 call
• long the 7320 call

I put the trade on when the index was around 7150 ... when next I looked it had dropped to 7080! But it recovered and actually spiked the next morning on settlement to 7247 ... just within the short call, so fully profitable.

I sold 5 of these for a $9.00 credit each (i.e. $900), so that's $4500 (minus maybe $100 in commissions and fees, so let's say $4400. That's a 14.4% return.

Back to your problem with the sliding house ... If you could scrape together $200,000 to put into this trade, you'd (for example) have made 6.5 times the $4400, or $28600. It's reasonable to assume your winning this trade 5 times in a row, ramping up with increased capital. Volatility will vary, so you won't necessarily make as much as $9.00 all the time ...

In 5 months you could expect to make $100,000 extra, for whatever you can do with that (put 1/3 down on the $300,000 loan you need to fix your house?)

And you could lose $80000 or even $100000 if an extreme loss happens at the wrong time ... this is very unlikely (losses when they do happen are likely to be more like $20K to $30K) ...

So: maybe not an everyday strategy, but if you have only a few months to keep your house from crashing, maybe worth considering?

Finally, your virtual $200,000 account ... was up about $14000 last week. I wouldn't have risked more than $100,000 of this account on this trade, without a house teetering on the brink ...