My Option Dilema...!

Discussion in 'Options' started by TradStSOX, Feb 29, 2008.

  1. Good, just move the posts to collect your money.
     
    #11     Mar 5, 2008
  2. Not correct if you exclude two instants: (1) when position is opened, and (2) at expiration. Also not correct even at time of opening position for certain strikes if cost of carry is not zero, and exercise is american .
     
    #12     Mar 5, 2008
  3. As in my above post, MTE is NOT always correct. Maybe correct only at two points in time, and may not be correct even at the beginning for certain strikes when carry is non zero and exercise is american.
     
    #13     Mar 5, 2008
  4. As we exchanged in the PM messages, you know that there are many ways to play your hand where you can just come on top. Some you already now, and others will come. The people who answered your post did their best, and I think they should be thanked. They just saw your question from another perspective, but their contribution is valuable.

    But there are some people at ET who have mostly nuts in their heads (they did not respond yet to your post). They hang in here mainly to eat free lunchs (you know that I am talking to you. Not you the general reader, but you a certain reader. I know that you are reading this now). Some of these people do not give anything in valuable in return. Well in order for them to know how to play your hand in at least 5 profitable ways, they will have to PM me. For the rest of the readers, if you want to know how to play the hand of the OP, feel free to PM me, I just do not want some people to have free lunches.

    Do not get rid of that hand. It is a perfect hand. Particularly do not exchange it for the strangle (OTM put and call).
     
    #14     Mar 5, 2008

  5. TradStSOX:

    Your strategy will make money only outside the range of 90-110. The stock should be either below 90 or above 110 at expiration to be profitable.

    What if the stock stays at 100? The call will have intrinsic value of 10, but PUT would have lost all its value making the trade (10+0)-(10+10)=-10.

    If you do the similar analysis with reverse positions as suggested, 90 Put and 110 Call, you will pay less in the premium, but see what happens when stock is at 85, the PUT will be worth 5 points, and the call will be worthless, making you a profit of 5 as in the case of DITM 110 PUT/90 CALL example. Again, if the stock remains in the zone, the options expire worthless. In that case all you lose is just the premium which would be less than 10 points!

    You can make this a calendar or diagonal spread from your original DITM postion to cover some of the risk, but again the same can be done by the OTM postions too!
     
    #15     Mar 11, 2008
  6. Long DITM put and DITM call can not lose capital if cost is difference between strikes.
     
    #16     Mar 11, 2008
  7. pl. disregard my previous post.

    I wanted to say this:

    TradStSOX:

    Your strategy will make money only outside the range of 90-110. The stock should be either below 90 or above 110 at expiration to be profitable, between the range it will breakeven.

    If we do the similar analysis with reverse positions as suggested, 90 Put and 110 Call, you will pay less in the premium, with stock at 85, the PUT will be worth 5 points, and the call will be worthless, making a profit of 5 as in the case of DITM 110 PUT/90 CALL example.

    However, if the stock remains between 90-110, the options expire worthless. In that case we lose the premium.

    So, I am not sure how the reverse position is the same as previous one where you can’t lose.
     
    #17     Mar 11, 2008
  8. Riskfree: I was late to edit, and you beat me o ntaht one!

    You are right, the DITM can not lose, and that's what I wanted to update. Thanks for the correction.

    I was looking at a scenario to write a short term OTM call/put on the same positons, and we may lose in that case if one of the short term strikes are hit at expiration.
     
    #18     Mar 11, 2008