Will buy 1 call and sell 1 put completely eliminate volatility?

Discussion in 'Options' started by e-miNY, Nov 1, 2006.

  1. e-miNY

    e-miNY

    If i want to do a directional play with option and i dont want the risk in volatility of option. Will buy 1 at the money call and sell 1 at the money put (Delta: (0.5-(-0.5)) = 1) give me the same result as i would long 1 future?
    Would the movement in implied volatilty of the short put and long call offset each other?

    Thanks in advance for all the options traders who have experience!
     
  2. poopie

    poopie Guest

    yes, zero option volty.
     
  3. For what it's worth, I'll say that about 99.8% of the time, that'll be true. In a volatile price scenario, the bid-ask on the options should widen out faster than that of the futures. You'll have to be careful when offsetting the options against that type of backdrop. The futures would be easier.
     
  4. e-miNY

    e-miNY

    Right! The reason i have to do this is i am under capitalized for the market i want to trade. The korean options are pretty liquid and the bid-ask are usually at the minimum even in volatile market.
    In reality, is really hard to buy a call and sell a put right at the money. It has to be skew to one side because the market doesnt trade right at the strike price. So, in that situation, i would be exposed to a little movement on implied vol. one way or the other right?
     
  5. MTE

    MTE

    Nope, it's a synthetic long at any strike.
     
  6. if i recall correctly, the buy one call and sell one put play is called a "synthetic long"
     
  7. Selling one put is equivalent to selling covered call. So you are getting here 1 short covered call and 1 long uncovered call.
     
  8. MTE

    MTE

    By that I meant that you're not exposed to IV.


    You can dissect it any way you like, it still nets a synthetic long.
     
  9. True.
     
  10. And a synthetic long underlying has no greeks (apart from delta of 1).
    daddy's boy
     
    #10     Nov 2, 2006