Thanks to the Synthetic Gang

Discussion in 'Options' started by exQQQQseme, Mar 6, 2007.

  1. When I first came on to these boards, I felt I was a pretty good options trader. After my first few postings, Ursa and a few others knocked me around pretty good. I reacted with the normal indignation and faught back.

    OK, that's background for what I'm leading up to now.

    For years my favorite strategy was writing covered puts (shorting the stock and selling puts to open). I still love doing that and frankly always will. Yes, I was aware that academically a covered put write was a synthetic uncovered call, but in my stubbornness, I felt "what difference does it make".

    I had accepted the fact that I had to do my covered put writes outside of my IRA account, thus making my profits taxable. But the profits were there and I paid my taxes as required.

    So, when the light went on in my head regarding the possibility of doing synthetic equivalent steps, I figured that I would write uncovered calls inside my IRA, thus having the best of all worlds. But, you know what happened. The broker would not clear me for uncovered options writing.

    Solution: Rather than rant and rave and threaten to change brokers, I believe I have come up with a very practical solution. Because I am cleared to do credit spreads inside my IRA, I simply do the following:

    (1) I sell to open an ATM current month Call. (or one month out where appropriate) At this point I have the synthetic version of my beloved covered Put write. I adjust this position as the stock moves either up or down.

    (2) To humor my broker I will buy an OTM LEAP Call, where so far I am able to pick it up for somewhere in the 20 cent range. I regard that debit as a mere incidental pain in the butt expense.

    No strategic plan is perfect. Most of us know that. I still have to live with that cash holdback option requirement. But, I can handle that.

    So, again I say thanks to all of you who knocked me early on when I was reluctant to look into the full impact of the synthetics.

  2. Nanook


    Sell to open an ATM current month Call & buy an OTM LEAP Call = Diagonal Spread
  3. just21


    Just think how much you could do with interactivebrokers and portfolio margining on April 2nd!
  4. Nanook, thanks for the response; however, I'm not big on names.
    One of the points I was trying to make in that long-winded post above is that the LEAP long call is a throw in and not a significant part of my thinking or planning. In this strategy I trade in blocks (contract size) usually 2. One of my methods of risk management is diversification.

    Just21, thank you also. Regarding the new rules, I'm watching this one with some caution. For sure, I'm not jumping into anything right on April 2nd. Let's see how the new rules play out.