Thanks for the education guys. I really appreciate all the valuable input. Now I know what a haircut is. Although it is out of my control, so it is knowledge that will not effect my trades. And it seems to me that the cost of doing business on the downside whether paying the spread on the options or the interest and dividends on the short stock all comes out to about the same. Maybe not. But as they say, ignorance is bliss, and as such, I choose to remain ignorant. Thank you gentlemen.
inandlong, assuming you'll short via IB, you'll earn libor-125 bps on your short stock if the short credit balance is over 100K. i'll just add my 2 cents to optimal time frame.... In theory you could argue there is none as pricing models take into account the various factors. However, the longer out you go, your risk does increase, especially for the retail trader - i.e. are you using a proper interest rate, are you estimating the correct dividends/dividend date, is your guestimate of volatility good (small changes in vol can lead to large changes in price long term). As a result, the longer out you go, the more variance you'll get between pricing models. Due to these and other risks the further out you go, the wider the spread and the more you'll have to pay. liquidity is also a major factor. assuming you're correct, typically the deeper the option gets in the money, the more the spread widens and liquidity dries up. you may have a tough time getting out before expiration at a decent cost. aphex, theory is great but practice is another thing, beware of biting off more than you can chew .
Aphie, I am glad to hear this. Now I will know where to go when I have a question about options. Thanks for being here! Tell me a little about "flex options" - I keep hearing about them, but I don't understand what they are. They have a different expiration or something? What's the deal? What the heck are they? Where do you trade them, and how do you get quotes on them? Also, are they European or American style options? Can I use them and do the usual kinds of spreads with them? What are the commisions like on them? Who are the best brokers to use for them? Is there any good software available to analyze them? Do they seem more suited to calculate using Black Scholes or Cox Ross Rubenstein? And why one over the other? Thanks Aphie, rs7
Yeah, I want to do some credit 'flys too (and the other more exotic stuff also). Aphie, help me out here. Help us all. Please? rs7
Once he is done with my first set of questions; we can move on to the advanced stuff, i.e. how do you get a free option out of a parity trade, etc., etc., ...
I always respected the knowledge you guys have, but having read thru some of the threads, and just looking at the last posts by you metooxx and rs7.... that's just incredible. I feel like Lucy leaning over Schroeder's piano asking him to play "Jingle Bells". You know the scene... ! Awesome. :eek: