The fact you have the humility to call yourself a newbie, a I myself often do, makes me glad to help you out, whenever I can. It's a matter of mutual respect and respect for the profession in which we're engaged. You're welcome nikko, Ursa..
Ursa, in the middle of your posting above you state, "Now, instead of addressing this obvious misconception, thanking for the new insights or even debating its validity, you totally ignore it." I stated on several occasions in this thread that how appreciative I am for the helpful responses. It's all there for the reading. All you seem interested in doing is knocking me personally. In my posting at the bottom of the prior page I mentioned that I am handling the margin issue by doing this in an account that already has a significant equity balance. You choose not to even comment. Believe me, this is a very valid cogent point. I have been shorting stocks for years. At all times I know what the margin limitations are. I have never been blocked from putting in an order due to margin considerations. Ursa, the reason I am reluctant to go into my reason 2 is that I know you are out there just chomping at the bit waiting to take it and fire a second shot. You mentioned how irritated and offended you are my what I say here. You and I don't know each other. I'm sure if we were ever to meet we would find the other to be a very nice gentleman. For some unknown reason, in these forums, you just don't like me. Perhaps you should consider giving your frustrations a break and not participate in the threads which I start. But, that's your call, not mine. You can continue to take shots at everything I say. I refuse to meet you on the same low road. Bob
Nikko, look at SmilingSinc's response. He said he was not talking about margin interest expense. He said he was talking about the margin requirement. They are two separate issues. My comment on the equity account balance had nothing to do with interest expense. And it also has nothing to do with band wagons or Pillsbury Dough Boys. The margin requirement is covered by Reg. T. Interest expense is a whole different subject. My margin interest expense relating to shorting stocks has never been more than $75 in any calendar year. Also, I didn't say I have "the funds" in my account. I said that I had a equity balance consisting of mutual funds that is applied toward one's margin requirement. Use of the term "the funds" implies cash reserves. If I was misleading, I apologize. Bob
Ursa, you also stated, "He opens by describing a strategy that has came up in his mind, not actually traded or tested or researched. That wouldn't be a problem in itself but the tone suggests that we have here someone using this method day-in-day out." I know several who use this on a regular basis. How are they doing? Honest answer is I don't know. I have been using it on a regular basis since early last summer. How am I doing? Not that great. But, better in recent months than the early months. I made some foolish mistakes in the beginning. Still making mistakes, but not as many. But one thing I swear to you: I have never had any kind of margin problem or issue whatsoever. This is not some idea I personally came up with. It has been around for years. It is a form of Gamma Scalping, as one of the responders pointed out last night. Yes sir, I do read and carefully consider the responses. And, NO, I'm not smart enough to come up with something like this. Matter of fact, when I Googled "Gamma Scalping", among the hits that came up was a detailed discussion of this exact subject back in 2004 on these very ET Boards. There was a lot of intelligent back and forth and I learned a few valid points to both sides. Bob
Of course I know that, I'm not saying that the strategy is bollocks. It even has some merits but you never asked to tell them. I'm saying that the so called big advantage is nonsense. And even that is not a problem, we're here to learn. The problem is your pedantic way of putting it out and after it has been shown to be nonsense you ignore it completely. Up 'till now you haven't touched that subject again. This is what it is about: "That is: The theta decay is significantly less because only the calls have theta decay. There are no puts to decay.". Several have pointed out your mistake and you failed to acknowledge it, which I think is insulting. The moreso because you refuse to spend your energy on reading a few good books. Instead you engage in a discussion about margin (suddenly there is another account to make things ok) that someone else brought up. You're right that we don't mix, and I really doubt we would get along in RL. I have an aversion to arrogance and to ignorance. The combination of the two is highly dangerous, not only in trading, and I stay away from it. I probably won't bother you again, unless that means I would have to ignore others too. Ursa..
On the double theta thing, I have two comments. 1. I never said it was the One Big Advantage. I just used it as a starter. 2. I was completely wrong on this point. I have previously thanked those who pointed it out and I express that thanks again. (I would also appreciate it if someone would point out anything in this thread where I was arrogant.) Being wrong and admitting it is not tantamount to arrogance However, I believe that some might regard it as the synthetic equivalent. LOL Also, for the record, in the posting immediately above by Ursa, he said I was referring to a "second account". No I wasn't. What I was discussing requires that it all be in the same account. Now, here's my second reason. I believe that shorting stock is preferable to buying puts, based on the following: a. I do not incur an out of pocket debit, but rather receive a credit and there is no interest charge if the stock goes down. b. There is virtually no slippage when shorting stock and, as some have pointed out earlier in this thread, it is much easier to adjust deltas with stock than with Puts. c. With shorted shares I'm not limited to blocks of 100, as is the contractual obligation with Puts. Finally, if there is anyone here who is offended by my postings and would prefer that I no longer participate on these boards, please send me an email and let me know. If enough of you feel that way, I will be happy to step aside.
Assuming you start with the biggest advantage, in your view. And why not say "I think this is a big advantage", like a viewpoint/question. You state it as if it is a well known fact. Not me. If you did acknowledge the mistake I missed that and apologize. What I mean by arrogance is the set tone in which you state 'facts' that only show how little you understand. Where I come from that is called arrogance. You should by now have an estimate of how small your knowledge is and adapt your pose accordingly. You DO really sound like some of the guru's on Optionetics, as if there is no doubt about your visions. Maybe you picked up that tone overthere. Ok, I read that wrong. Margin and interest issue are not my cup-of-tea, so I only glanced it. I only know that long options don't need margin, just the fair premium. Also, in my IB account going long or short the stock will detract comparable amounts from my account, so I never saw an issue there. Re: interest on margin, I think those costs are accounted for in the premium of the options, hence the diffrence in put and call extrinsics. Credit is added to short margin which, in my broker, results in about the same shortage. Does interest change when the stock moves? I don't follow. These are valid points. Add the ability to use stop-orders on the stock. The resolution being <100 is important but will lose value when the trade-size increases. For instance using 10 straddles, the number of possible adjustments (9) is more then enough for most purposes. No need to do that. I personally find it very interesting to see someone becoming educated in this art. But please do us all a favour and start at the beginning, like we all did. Read a few good books, you will thank me later. Last request: formulate your post like a question, or a at least an opinion, not a fact. Ursa..
Since there are many experienced option traders who are synthetics expert, I like to post a question unrelated to married call, but related to synthetics. RUT is currently at 790.16. Are 790 calendar call and 790 calendar put equivalent? Their individual risk graphs are very similar. I created a risk profile by longing 790 calendar put and shorting 790 calendar call. If they were equivalent, the p&n should be close to 0 at expiration, but they are not. Can we continue the discussion of the synthetics here?
Ursa, thank you very much for the kind response. I really do appreciate it very much. You inquired as to the interest expense computation when shorting stocks is involved. Perhaps I can lay it out here with a very basic example. Assume one has cash in their account of exactly $2,000. They then short 1,000 shares of UNDerlying at $50, and receive a credit of $50,000. Thus, at this point in time the cash balance is $52,000. At the end of Day 1, UND closes at $49.50. Thus, the negative end of the day ledger balance for the stock is negative $49,500. Since the adjusted cash balance, $52,000 is more than the $49,500, there is no interest charge. In Day 2, UND goes up and closes at $53. Thus, the end of day ledger balance will be negative $53,000. Since $53,000 exceeds the cash balance by $1,000, interest is charged on the $1,000. It is a daily computation and is charged each day there is a deficit. Assuming a 9 percent annual rate, the daily interest charge for day 2 is 25 cents. ($1,000 x .09/360). The rates vary among brokers and with some brokers is based on the size of the account. With every broker I am aware of, the rate is subject to change without notice. For those without a calculator handy, this 25 cents per $1,000 per day is a pretty good benchmark for quick mental calculations. One final point here: If options are written (Sold to Open), either as part of a spread or whatever, the premium received for the sold options is part of the cash balance. Hence, in this example, if on day 2 $400in premium were received, the cash deficit subject to the interest charge would be $600. Hope this is clear. This is what I was alluding to when I said that the daily change in the price of the stock can have an impact on the margin interest expense computation.
You're hijacking thread about a different subject. Maybe start a new one. Interesting example. Shortly and schematically, you assumption is correct: the complete position should equal out. You own +pMAR-cMAR which is a synthtic short and +cFEB-pFEB which is a synthetic short. The difference between the two is what makes all this so complicated: cost of carry and dividends. In fact you own (synth) long and short for two different underlyers, namely the FEB and MAR RUT. ALthough both options are based on the MAR RUT future, the short synth can be regarded as a short FEB future. I would say that the difference you see is equivalent to the difference between a FEB and MAR future contract. They too would differ because of expected dividends and CoC. I'm not sure why the P&L is not a straight line but it is probably because the synth long MAR you own at exp of the frnt month is not completely predictable regarding the IV premiums. Not sure here. Calendars are very interesting, but I still have to delve into them for real. Ursa..