1) So now we are talking about 20-30% of the position. I know this is because the short deltas of the protective puts (.71). I believe this would be your answer to why it would not be 100%. The amount you want to pay off is either $1.00 (April 100 put) or $6.60 (your April 80 put) -- not some hypothetical $2.50. Have you answered yet why you would buy the 80 put instead of the 100? So what is wrong with selling the Nov 85 call for $1.80 having a .28 delta? That seems to fit perfectly. Why can't you sell these to cover 100% of the position. In the unlikely event you are called out you would make money in addition to the premium income which pays off the put time premium whatever happens. Of course if you are buying the 80 puts you will have to wait many more months to pay off their time premium. That's over 6 times longer to break even and less net income. 2) Of course as said previously you need pay 14% more to buy a deeper ITM put, but you get what you pay for in terms of getting a bargain in time premium.
People still make options trades based on intrinsic and time values of an option? I guess the late night infomercials have an audience after all. All this typing for yet another way to tie up margin in a pretty hopeless bet.
???????????????? Are you saying near months will have more premium then far months? I get why you are selling calls to half the stock position. I would also like your response to Mo's question. I take it you mean the nearer TO THE MONEY strike. As mystic has pointed out pretty well, leverage works both ways. Sure you can trade more of the position, and have more positive deltas if you buy the 80s, but your risk is also amplified. The idea is to minimize the downside risk, not open it up. Please don't give a ridiculous answer. Considering the tone and quality of your posts, the previous posters and I have gone really easy not to annihilate your argument.
Mysticman, As Eliot points out, I simply use the 5.25% interest rate and the current stock price (76.98*0.0525*474/360). My calculation may not be exactly right as the 5.25% interest rate may not be the best estimate for the next 474 days, but it is a good proxy. It doesn't matter, which one you have, synthetic call or "actual" call, it's the same thing, that's why they are called synthetics. The only difference is 1 trade and thus 1 set of commissions and slippage vs. 2 trades and thus 2 sets of comm. and slippage. If all you wanna do is buy a call then buy a call and forget about the stock, on the other hand, if you already have the stock as a long term investment and want to protect it then buy the put! Sorry, I may be answering what someone else has already answered, but I'm too lazy to read all the post.
If I had to guess what his answer would be, or perhaps what it *should* be, the time premium of the November 85 call is greater than that of the April07 100 put, both absolutely and per day (theta).
lol.....this post is funny. especially the last paragraph. Its why i dont wast time with people like you. But, ill give this one more shot in the next post to explain it to mystic man. So that I can use his posts for reference.
It's still a synthetic call any way you look at it regardless of the deltas. You are doing call credit spreads and backspreads. Same risk and same reward. Except your buying the synthetic and paying more...
What's your strategy for generating income with limited downside risk, without taking speculative directional positions?
Actually the deltas for the long puts are negative. I was thinking you would want smaller delta in case the stock went up. That way the put would lose less value than the stock gained, in case you wanted to sell the put at some point.
There is alot of information on ET already, take a look at the journal section. Perhaps use the search function and go back a few years. There are many ways to achieve what you seek, synthetic long calls isnt one of them IMO.