no, he's not. you're just making sh1t up. he specifically said he's looking to put this on and would even like to be a net collector of premium. are you sure you're even reading what he wrote? you should go edit your initial response to the OP and change your ludicrous 120 call to the 250 call. at least it would remotely look like what he's trying to put on. another stupid reply. as well as telling a premium collector trying to get long to go buy the stock. responding to any more of your pretzel logic is just a waste of time.
What do you guys thinks of selling a vertical put credit spread and using the credit to buy a long call?
My response was to you, hence the fact that I quoted you, not the OP. Yeah, selling the 100-delta put is pure fucking genius. Upside limited to the premium and identical downside, less the 1/8 he receives in extrinsic premium. You told him to sell the "80-100 delta" put.
Droid, Are you looking to receive a net-credit on the entire position, or finance a portion of the call debit? I assumed the talk of a "risk-reversal" substitute meant that you're looking to choose risk-reversal strikes that are symmetric w.r.t. deltas to construct the vertical + long call, obviously at a net-debit.
Hi atticus, I didn't mean to open a can of worms I was asking if in general it was a good strat to use that combination. Basically I was looking to have the benefits of the RR (the unlimited long potential) with a max predefined risk. Thus selling a bull put credit and using that to finance a long call. If I picked a call far enough out I could receive a small credit. In general though I was looking at calls at about a break even pt. Hope this clears things up and sorry to cause trouble! Thanks, Droid
No worries. Here's an example in BIDU. Short the 380/400 put spread and long the 480C. Down and out skew, so you receive a >$1 credit at ~equal-delta, slightly favoring the call. Assuming a price of $427 on spot. Trade risks $18.85, but at least it's floored.
I think you're making this way more complex than it is. If dollar neutral means there's a net credit for the entire position, the long call will not have to be "very" OTM. If the spread is ITM, the long call will be less than 2 strikes out. Commissions are a distraction. They aren't a big factor if under a $ per contract. At a fee per trade place, they're a killer. But the question is about strategy not about who's silly enough to pay $10-$15 per trade. I have no clue what the OP intended but I don't see it as a volatility play. I think it's a directional play and will need minimal movement to break even (the TP of the spread is likely to pay for most if not all of the OTM long call), And an ITM naked short 80-100 put with a reasonable stop is not a better way to make the bet when one wants a risk managed floor under the position. Sure, save on commissions and get whacked with a gap. Sorry, no way.
Thanks spin and atticus Yes that is what I was trying to describe. Yes it was a directional play, not a vol play. Droid
e.g. MCD @ 64.45 Buy the Jan 65 call for 1.23, sell the Jan 65 put for 2.26 and buy the Jan 60 put for .56. Net = $44 credit. ................................P/L................................ .............Call only.............Call + put spread 55..........(123).......................(456) 60..........(123).......................(456) 65..........(123).........................44 70...........378.........................545 75...........876.......................1043 ---------------------------------------------------------