I know what you are thinking. "Don’t be an idiot Paul. There’s no such thing as ‘risk-free’. Hasn’t anyone ever told you that?"

Yes I have been told that, many times. But my question is this: how do they know there is no such thing? Have they actually tried every combination of financial product with every other? Have they built programs and simulations? Have they even bothered getting to the theory stage? Or…….are they simply regurgitating what someone else taught them? Maybe this person is authorised to comment. No?

The fact of the matter is there are risk-free trades out there. I have developed quite a few in fact.

Let me show you an example:

NABIOJ was a $30 Nov 2004 instalment warrant. Before NAB paid its 83c div on Nov 15 2004, this warrant was trading at 83c. (they werent silly enough to sell it any lower). This provided a risk free trade. You could have bought the warrant for 83c, held overnight and collected 83c cash div plus 35.5c franking credit (total 118.5c). Once ex-div, the warrant was worthless, although a sharp NAB rally towards $30 would have created some value. So you would have made a 43% return on your money, plus had free upside exposure. In addition, having bought the warrant in the month prior you could have written a Nov $30 call against it for 16c. Be on the lookout for short dated instalment warrants (trading at cash div value) around cum-div time. Most likely this will occur when a stock gets heavily sold off.

If you think there is risk there somewhere, please let me know. You may have trouble doing this kind of trade often, but the point is, risk-free trades do exist.