To cut a long story short, he came out with a neutral synthetic, one long leg, one short leg, and a pair of black scholes.
Okay, so I know where I screwed my trade. it was the two additional calls and the ignoring of time value. So revised Position is: shares - 100 = +19800 Call 200 +1 = -150 put 197.50 - 1 =+470 (470= 50 intrinsic, 420 Time value, so linear decay would be about 0.23 per day) =20120 If by sept 4, spy is at 193 shares -100 =19300 (+500) call 200, +1 = -150 put 197.50 = (-450 intrinsic -420 time value) +115 (use 0.23 per day) = -405 @at this point you can still sell the 197.50 or 197 put for the following week for at least 450 + time value. (thinking it would be enough to offset the loss here and purchase 197-200 call for cheap. ) If by sept 4, spy is at 203 shares -100, 20300 (-500) call 200 = +150 put 197.50 = (450 intrinsic + 420 time value + 115 time decay) =+635 Loss area is 192-200.50 Anyway, i think this is right.
-100 shares and the long 200C = a synthetic 200-strike long put in Sep4, 2015 -1 197.50P in Sep18, 2015 Value on the synthetic call: $350 Put val: $470 Net credit (absent carry, comms): ($120) You would be long (1) 197/200 bear vertical if these were the same duration. You are in a diagonal from -1.20. The issue is that you're short 95-delta with the Sep4, yet long 65-delta with the Sep18. This is not a vola position (not now, anyway), so basically you're short 30-delta out to Sep4. You have no intention of holding this beyond Sep4 last trading day and the thing has a theta of like 5. Why not simply short 30 shares of SPY? I can't fathom how you think this makes any sense whatsoever. The same-expiry trade would be a short collar = bear vertical. You add in Sep18 expiration, but have no intent of holding past this weekend. I was going to put up the stress-test, but it's pointless as vola has rallied 500bp and the SPY has dropped $5.
my intent, was to use a short put below my short stock in order to purchase a call to cover the upside risk.
You're looking at all of these pieces as though they don't reduce; they do. Don't involve the shares. An example: long shares, long 90P, short 100C = the 90/100 bull vertical. With shares it's a collar, but it's unnecessary to involve stock that you don't already own or are in possession of a pre-existing short position. The collar reduces to a two-leg vertical spread. Some brokers will reduce your haircut due to the reduction in risk (no haircut on shares), but some will simply apply Reg-T to each individual position. Long shares + long put = long call Short shares + long call = long put Long shares + short call = short put... find out about synthetic relationships; P/C parity. Puts are calls, calls are puts. "The difference between a call and a put? Shares"
thanks for all the response. Anyway, this trade was poorly executed. To recover, this is what I will do. Current position after commissions -100 shares @197.85 = +197.85 - daily interest rate % 2, 1.08 + 15% = 1.25 per day -1 put @197 for credit of 6.67, $667 +1 sept 4 200.5 call (was 3 originally), @$1.50 a piece total =$450 +1 sept 11 198 call (order in today) @$1.30 Remaining credit 0.55 less commissions and interest =0.24 sept 4 upside loss @200.50 =($450 +215) - put (time decay and delta) sept 11 upside loss @198 = (450 + 130) - put (Time decay + delta) Sept 18 going to try to use the remaining credit of 0.24 to subsidize a loss. Anyone have any suggestions that can make this trade better for a less damaging recovery?
Close it out. We rally tomorrow (perhaps another 15-20 ES is possible from here), but not enough to salvage it. Repair strategies are simply loss-avoidance. Don't trade (a repair strat) that you wouldn't consider as a standalone strategy. So many people write calls on their long-term holdings. They see the shares drop 30% and then get called away when it rebounds. Try to remove shares from the equation; it adds comms and increases your haircut. I've seen pros turn a 20% position loss into 200% using repair strategies that turn in -gamma scalps.
Why do you call yourself badlucktrades...that's like wishing death upon yourself...can be a self-fulfilling prophecy. In trading, and in life for that matter, you kind of need all the good luck and positive vibes you can get and muster.