Favorite Trading Strategies

Discussion in 'Options' started by exQQQQseme, Aug 19, 2009.

  1. I don't have a particular favorite strategy. I do whatever comes naturally.

    However, having lived through a few "interesting" episodes, I can say with certainty that I am not a big fan of selling gamma.
     
    #21     Aug 20, 2009
  2. I think it looks like your understanding of synthetic options would be quite outstanding! :)
     
    #22     Aug 20, 2009
  3. spindr0

    spindr0

    It's amazing what you can do when you can count to 21

    :)
     
    #23     Aug 20, 2009
  4. Seems you can only Guess, and merely Guess, Again and Again! Probably that's what you can do the best! :D
     
    #24     Aug 20, 2009
  5. short ATM straddles 3 weeks out... cover at 2x premium or 20% return on margin

    or...

    ATM bull put spreads


    Depending on maket conditions...
     
    #25     Aug 20, 2009
  6. Spindro, thanks for your responses. In the interest of time, let me mention just of one of the ways I like to use this synthetic long put.

    Example: UNDerlying trading at $33.

    1. Short 200 shares at $33.
    2. Buy to Open: 2 Sep $35C for 40 cents.

    One week Later: UND trading for $30; Call Bid is 5 cents.

    I could buy back the 200 shares and also sell the Calls for 5 cents, or

    another way to exit the trade would be to Sell to Open 2 Sep $35P for something in excess of the $5.00 extrinsic value.

    This way I am synthetically out of the trade, but if I have a balance subject to interest, my margin interest charge would be reduced because the premium received for the sale of the Puts would reduce amount subject to interest. From a cash flow standpoint, opening and closing the synthetic in this manner is better than the natural.

    Explanation: Shorting the stock and buying the $35 Call is a synthetic long $35 Put. Selling to Open a $35 Put synthetically offsets that synthetical long Put. Spindro, or anyone else: please help me on this....is it called a "reversal"?

    4Q
     
    #26     Aug 20, 2009
  7. "Those who know would never tell.
    Those who tell would never use.
    Those who use would never explain.
    Those who explain would never know." --- OddTrader :D
     
    #27     Aug 21, 2009
  8. wayneL

    wayneL

    Sounds like something Lao Tzu might have said. ;)
     
    #28     Aug 21, 2009
  9. Has she? :)
     
    #29     Aug 21, 2009
  10. spindr0

    spindr0

    4Q,

    Thanks for explaining your preference for the synthetic over the natural. You have the mechanics right but not all of the details.

    >> another way to exit the trade would be to Sell to Open 2 Sep $35P for something in excess of the $5.00 extrinsic value. <<

    Yes, selling that 35 put for $5 creates a "reversal". However, the $5 received is intrinsic value not extrinsic. Though you are most likely out of the trade at expiration, you might not be due to pin risk since a close at 35 means that all options will expire and you'll still have stock exposure.


    >> This way I am synthetically out of the trade, but if I have a balance subject to interest, my margin interest charge would be reduced because the premium received for the sale of the Puts would reduce amount subject to interest. From a cash flow standpoint, opening and closing the synthetic in this manner is better than the natural. <<

    I'm not sure what you mean by this. What does "from a cash flow standpoint" mean? Are you looking to create a cash balance in your account? In terms of interest received, there's no advantage to the synthetic over the natural. The carry cost is imbedded in the price of the options. Had you initially bought the 35p, it would have cost you about a nickel less of time premium which is about the amount of credit you might receive from your broker "IF" he pays you fairly on the credit balance from the short sale of the stock.

    As for "opening and closing the synthetic in this manner being better than the natural, you've racked up 2-3 times the number of commissions with the reversal (depending on whether assigned or you close it yourself). And if you did not go the "reversal" exit you'd have leg out risk (unless using a combo order) which you would not have with the natural. And then there's all the extra slippage of 3 legs versus 1 leg.

    AFAIK, the only advantage to the synthetic, assuming no initial pricing discrepancy is the ability to leg in/out and/or trade the components (in particular, the stock intraday).
     
    #30     Aug 21, 2009