On the contrary, I have traded complex option strategies for years and have never heard of "Put/Call Parity" until sel took my selling iron condor strategy that I recomended to to the PM to task, exalting Put/Call parity and making no sense at all. So I looked it up and here is what Wikipedia says: From Wikipedia, the free encyclopedia In financial mathematics, put–call parity defines a relationship between the price of a European call option and European put option, both with the identical strike price and expiry, namely that a portfolio of a long call option and a short put option is equivalent to (and hence has the same value as) a single forward contract at this strike price and expiry. This is because if the price at expiry is above the strike price, the call will be exercised, while if it is below, the put will be exercised, and thus in either case one unit of the asset will be purchased for the strike price, exactly as in a forward contract. In any regard it is all academic nonsense to me. So, since I have the honor of winning the dumbest post award, Please, explain to me what it is and why any option trader should care because all of these years I do not seem to have needed to know this.
Hey, I just said I had no idea even after reading Widipedia what is all means but don't bother researching it so you can explain it. It is more fun just to be arrogant, huh.
Naked put vs. covered call: What's riskier? http://www.futuresmag.com/2010/04/30/naked-put-vs-covered-call-whats-riskier
There both the same ?? 1 is shorting the Put's value and the other the Call's Value. Ofcourse the Put has a limited upside, $20 stock the max option value is $20 only if they go bankrupts, so the risk is atleast capped. The Call on the other hand, has no theoretical upside, it could go to $100 therefore a value of $80. But lets face it, stocks are way more likely to lose money fast than go upwards fast, therefore the Short Put is still likely riskier. * I used to trade options many many years ago, but never had the option to short options, IF you very careful and well studied than I can see the OTM Short's expiring worthless 99% of the time, so next day after they expire put 25% of your account at risk and odds are 9/10 months you'll grow the account 25%. ** you need to be way OTM, stay away from earning. p.s. I blew my 6K account pretty much over night on a market gap and reverse IF I'd of went Calls and held for a week or 2 that 6K would of been worth 100K area
had I started with options.. probably would have happened to me too! My first big losses were with the lovely ES.. over-trading like a mad man playing a video game..
I think you started off with the Mr. Know it All approach and then threw some garbage about Put Call parity without understanding what it is. I do not think I need to come in and educate you when you seem to have all the answers.
OK lets just clear the air and part friends till we meet on another thread. The PUT/CALL Parity thing was initially sprung on me by someone who either misused it or did not understand it and I was ridiculed because I asked for an explanation. As far as my quote above, yeah I do own that one. With a 1.2M bank roll and proper money management, option selling (not naked) but done in the form of a vertical call spread and a vertical put spread placed beyond the Market Maker expected move to the option expiration, is a reliable income stream.
That would be me, I assume? Put/Call parity is important because it shows you an equivalence of different option positions - for example, it allows you to construct the same payoffs based on different building blocks. For example, the fact that covered call is equivalent to a short put would be obvious to anyone who understands it. I said that every out-of-the money option has an in-the-money equivalent via put/call parity. For example, if you sold a 95% put and it expired worthless simply means that a 95% call expired in the money. At the inception of the trade you could have sold stock and converted your short put into a short call, but it would not be reflected in the expiration statistics.