Synthetics

Discussion in 'Options' started by hajimow, Apr 21, 2006.

  1. I covered my Call 390 at loss ouch :(
    No GOOG position anymore.
    One great trade on RMBS:
    RMBS is at 38.50 or something. If you believe it will stay below 40 today short the stock and sell naked put for 40.25 . You will get 0.25 per share for sure. Put them as a combo order
     
  2. trkarl

    trkarl

    Couldn't have said it better.
    Now try telling someone who is sold on selling covered calls that all he has to do is just sell the naked puts instead.
    :eek:

    T
     
  3. Let me tell you the whole story and then you will know that I did the best thing. First I shorted the stock at 39.5 and the next day it went to 42 and I sold PUT 40 to protect myself. This is the first part of my trade. This was done 2 weeks before the option expiry day.I don't think that you will argue with what I did. The second part of my trade happend in the last 2 hours on Friday the option expiry day. The stock was trading at 37.9 to 38.30 and You could not sell Call 40 even at 5 cents. I was shorting the stock and then selling the PUT 40 so the total money that I was getting was between 40.17 to 40.22. I did it for 1500 shares and I got my gas money. If you rethink on what I did, you will admire my trading and take your hat off for me.:) In this case selling the stock and then selling PUT was not equal to selling Call. They are equal in theory but not in profit.
    Please let me know if you still disagree with me.
     
  4. cnms2

    cnms2

    If I understand you correctly, you made the wrong call shorting the stock, then by selling the put you locked in some of your loss. It happens. I think that riskarb's point is that instead of selling the put, you could've covered your short stock and sold the call, freeing up some margin. Isn't it?

    I'm not sure what you meant by "They are equal in theory but not in profit." If you consider the interest rate, dividend and the margin, probably the short call is a little better.
     
  5. If the trades are independent, then yes, it wouldn't be logical to offset the shares and then sell the call; but Hajimow was specific when stating the trade[short spot/short put] should be traded as a combo order. I think he's backpeddling a little.

    It's not a fatal-error, but a knowledge of synthetics should be had by anyone trading options.
     
  6. A short atm put is not protection. As cnms states, it's locking in a loss + additional costs. There is no such thing as a repair strategy. There are thousands of optionable stocks; offset and move on.

    All this to lock in a $.25 return on the put?
     
  7. Yes you are right. I have covered my short many times with loss and sold naked Call in repair and as you said it will free up your margin and put your leverage in better shape. I was recommending to short RMBS after it went against me. What I was recommending was to short RMBS in the hope of covering it fast and if it goes against you, you can do what I did and sell PUT or as you said, maybe to cover it and sell naked Call.
     
  8. Once again divide my trades into two parts.The last part was geting 15 cents per share (almost guaranteed) in less than 2 hours. The only way to get that guaranteed profit was by selling the stock and selling PUT.
     

  9. guaranteed, almost guaranteed. :p

    Believe what you wish. All done here.
     
  10. At 2:30 PM Friday when you could not sell Call 40 at 5 cents while you could sell the stock and PUT and get 40.20 altogether, selling Call will not be like selling the stock and option in profit. Once again just look at the time that I did. Other times, you are right.
     
    #10     May 1, 2006