Generally speaking I meant just pricing a bunch of iterations and putting the outputs on a grid for you to interpolate over. Or using a solver (like in excel) to find the value you need. As opposed to an elegant math solution.
I thought it was clear that a spread is at inception. No? What's the point of buying a call when the option price has already exploded 10X higher with the infinite gamma that's already set in? LOL You know on a side note, I thought for you people who trade vol, you guys would love the theory that I have made that gamma can be infinite due to the MM's trading action due to the supposed "supply and demand" since when you buy vol, the vol can explode for you to make some extremely good profit but I guess you guys are what? Short vol I am guessing or at least for the short expiration? That's why you guys went berserk on me when I presented this theory by insisting on Black and Scholes, a theoretical model when in fact it's not confirmed that MM trade on supplies and demand and use Black and Scholes model only as a guide? LOL I hope you guys are hedging with your short vol and not doing them naked. Anyway, going back to OP's topic... So no. AT INCEPTION!!! Not with a spread. The long call would 1:1. And even with delta hedging with the underlying, it won't be overhedging cuz the short call would eventually be with 1 delta once it goes ITM, so 1:1 again as I said before: You realize that irl delta is dynamic right? It changes when market changes? And not like in your theoretical Black & Scholes model that your options idol clings on so tightly that it stays constant somehow after a certain point? LOL I mean think about it, that short call went from OTM to 0.50 delta so why wouldn't it go from 0.50 delta to 1 delta in the future? If that's the case, why would it be over-hedging if you buy the underlying aside from its inherent risk? My point is yes buying a call together with the short call AT THE INCEPTION would be much better but buying the underlying when the short call is at or approaching 0.50 delta would not necessarily be overhedging if the possibility of the short call becoming 1 delta is imminent or at least very large due to the changing delta. Why take a loss when you can have a chance to cover? Stop-loss is still taking a loss. I know that's why the OP is seeking for feedback as he's aware of the risks. This was addressed in the very first post of this thread: And now we are giving him our feedback. But again like I said: Leave your bashing at the battlefield, General Tao!! LOL We are not your enemies.
You do realise you are suggesting a ratio spread at inception,if I decoded your post correctly.. For your sake,leave everything you have learned regarding market makers to yourself... It's frightening
No I was suggesting a simple vertical spread, a short call of more lower strike + long call of higher strike of same quantity and same expiration. What's a ratio spread? What did you have in mind? I am curious. Dunno what you mean by frightening but anyway I forgot that I am talking to a former MM here, ok. LOL But I go by what has been discussed.
I see said the blind man.You are suggesting a short vertical at inception.. I thought you were suggesting "hedging" the short call with a long vertical,which would put you in a 1x2 or 1x1x1
WHY would I suggest a long vertical?? I have been very clear right from the beginning. Are you reading the same text that I wrote? WHERE did you see me suggesting to buy a long vertical???!!! You even confirmed my choice of buying a call yourself responding to my post so I thought you obviously understood that I am advising the guy to just buy a call instead of buying shares to hedge against his short call although I understand what he was trying to do by buying the shares only when assignment is imminent. And why would I suggest for him to hedge with a long vertical? He will be getting another naked short exposing himself again to the same problem. So what? He's going to get another long vertical containing another naked short to cover the naked short to be short forever?? LOL Is that what you institution guys do? Covering shorts with more shorts?? LOL Now that's frightening... LOL