Let's talk about spread execution

Discussion in 'Options' started by hlpsg, Sep 30, 2011.

  1. spindr0

    spindr0

    You buy the 810c and short the UL to be neutral. The 810c has a lower delta than the 800c. If the UL drops, the 800c's delta drops more than the offset number of short shares makes.

    For example, say the respective deltas are 60 (800c) and 50 (810c). Buy 810c and short 50 shares. UL suddenly drops 5 pts. 800c loses $3 and short shares gain $250. What now? Take the small (if any) profit on the pseudo straddle?

    Even if the moves are small, slippage and commissions are going to kill you.


    Legging in can provide greater reward but also has greater risk. The short answer is stick with the spread order especially if you're chasing a 5 cts better fill.
     
    #11     Oct 2, 2011