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spindr0
Registered: Nov 2005
Posts: 1838 |
11-07-09 10:22 PM
Quote from ptrjon:
In the future, I'd say don't be too afraid/too bored to just be long on a stock- especially in a bullish environment when money is entering the market.
It's one of the hardest things to do but when you feel absolutely the worst about the market, it's more often than not a time to be buying rather than selling. Sadly, many people wait for a market advance like we've had since March before feeling good enough to go long.
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JohnGreen
Registered: Apr 2008
Posts: 141 |
11-08-09 08:08 PM
A few comments:
1) Spin, you are bang on.
March was a great time to be doing these credit put spread/ collars. Now, it is more questionable, however. The SPX has already gone from 667 to 1069. The big question is: will it continue to rise now??
2) By the way, I can't believe those numbers are correct. At the money 500 puts for 5 and WOTM 600 calls for 2??? A more realistic version would have the puts closer to 20, possibly even more..
3) In terms of Mark's comment about credit put spreads and collars being exactly equivalent, but still recommending the put spread version, some readers may be wondering why.
Here's my take on the matter.
The put spread requires less trading (two transactions and bid-ask spreads vs. a stock, a put, and a call), yielding a small but significant savings in commissions and probably in trading costs. Also, at expiration, the two put spreads would be worthless, meaning that getting out would cost nothing. In the other situation, getting out would require the selling of stock and repurchase of the call, both of which would induce a little slippage (ie..transaction cost) So, overall, it is a little easier and cheaper to go that route. (Margin costs are also a factor)
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dagnyt
Registered: Nov 2003
Posts: 1773 |
11-09-09 02:39 AM
Quote from JohnGreen:
Here's my take on the matter.
The put spread requires less trading (two transactions and bid-ask spreads vs. a stock, a put, and a call), yielding a small but significant savings in commissions and probably in trading costs. Also, at expiration, the two put spreads would be worthless, meaning that getting out would cost nothing. In the other situation, getting out would require the selling of stock and repurchase of the call, both of which would induce a little slippage (ie..transaction cost) So, overall, it is a little easier and cheaper to go that route. (Margin costs are also a factor)
Agree. AND
It's often easy to exit the put credit spread for a nickel or two, and it's much more difficult to exit the collar.
Mark
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jones247
Registered: Jan 2008
Posts: 419 |
11-09-09 11:16 PM
How would you "trade around the core position with a credit put spread? Having a collar allows dynamic hedging by scalping and/or building your equity position as the market bounces off support/resistance levels.
Unless I'm missing something, the best a bull put spread can do is adjust and roll the spreads as the market fluctuates from support and resistance levels. However, that is so much more expensive with options, as compared to stocks.
btw, there's some literature on calendar collar hedging, by Tsuei Consultants that discusses dynamically hedging calendar collars.
IMO, it's very difficult to dynamically hedge a collar if the market is trending, particularly against the short option position.
Walt
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spindr0
Registered: Nov 2005
Posts: 1838 |
11-10-09 01:32 AM
Quote from jones247:
How would you "trade around the core position with a credit put spread? Having a collar allows dynamic hedging by scalping and/or building your equity position as the market bounces off support/resistance levels.
Unless I'm missing something, the best a bull put spread can do is adjust and roll the spreads as the market fluctuates from support and resistance levels. However, that is so much more expensive with options, as compared to stocks.
btw, there's some literature on calendar collar hedging, by Tsuei Consultants that discusses dynamically hedging calendar collars.
IMO, it's very difficult to dynamically hedge a collar if the market is trending, particularly against the short option position.
If you already own the stock, you use the options to achieve a collar. If one is thinking about doing a collar from scratch, the synthetic vertical is the better choice.
I don't get the point of it being more expensive with options than stocks. To do what?
As for Tsuie, I've seen some of their site. When someone telks you how good you can do by buying the stock and the puts and legging into the short calls at a later time/date, my reception shuts down.
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