Knowing the theory behind options, incl. synthetics and greeks, makes you a more efficient trader as you don't waste time devising a super-smart strategy, which in the end is just a synthetic vertical or a simple long call. You would also know that buying an ITM vertical can be substituted with selling an OTM vertical, which is likely to be more efficient due to the tighter bid/ask spreads. Knowing the greeks and their dynamics helps you understand why and how options move and what is the best strategy given your outlook. And so on and so forth.
writing covered puts might not be as efficient as what MANY of you do, but it is as profitable as what ANY of you do. MTE, if you buy one of those brilliant efficient OTM verticals and the stock doesn't move in your direction, you have a brilliant efficient OTM vertical that lost 100% of your net debit. And, for sure, it is not a synthetic loss. Once an opening order is filled, it is no longer synthetic. It is real. Bob
Algo..., I agree with everything you said. Only thing I would take exception to is what you said in the last sentence being limited to the ET forums. Bob
I read on Bill Cara's site a PG strategy -- makes about 20%, including dividends: sell high priced calls, sell low priced puts. He mentions that it may happen that your PG gets called and PG gets put to you. Any opinions on that?
Bob, That's not the point. The point is that if I make a trade I wanna minimize my transaction costs so understanding synthetics allows me to do just that. Why fight a wide bid/ask spread on ITM options when I can achieve the same position by going with OTM ones. By the way, I never ever questioned your ability to trade profitably. I did however question your motives for using a certain position instead of a synthetic equivalent, not because I wanna show my superiority to you or whatever, but because I wanna understand your motives and maybe learn something new. Once again, I'm not attacking your methods, claiming that you are doing it wrong. However, if you are telling me that you're shorting a stock and buying a call because you are bearish on some stock then I wanna know why are you doing that instead of just simply buying a put, which gives you an equivalent position!? And if you then tell me that you do it because of this, this and this then great, maybe I'll learn something new, if not then that fine as well. This is not a personal attack on you, so stop treating it like one. Other people, including myself, are just dissecting your strategies, which you have voluntarily provided for discussion.
MTE, no sweat. I know that this is not a personal attack. What has happened is that the gang has taught me how much fun it can be to dish it out as well as take it. So, that's what I'm doing. As so many have said to me. Just accept it. It's the ET way. Finally, I will NEVER NEVER Ever post a personal attack on anyone. That would be crossing the line. While so many here are concentrating on what is on the strategy blackboard, I'm concentrating on what is on the scoreboard. You said that if I short a stock and buy a call, you want to know why I didn't simply buy a put. Why should I, or anyone else, justify what I did not do? If you were to buy a put, it would be the same as my asking you why you simply didn't sell the stock and buy a call. The answer to both questions is the same. It's a matter of personal preference and comfort. If it is six of one and half a dozen of the other, why question the merits of the alternative? It goes in both directions, doesn't it? Bob
You're not listening, are you? MTE spoke of selling a OTM vertical, being equivalent to buying an ITM vertical. Of course the OTM vertical can end up worthless, but so would the equivalent ITM one. Do you copy? Ursa..
Well, to some extent, the result on the scoreboard does depend on the strategy scoreboard, so completely ingoring the strategy scoreboard is only hurting your scoreboard. (wow, I almost lost myself writing this sentence)
That's ok, when the scores stay behind you will be looking at your strategies. It is as MTE said, when you short stock and buy put we tell you it is the same as buying a call. You reply by telling you're not interested in strategies. Duh. What's the point then? Please explain why you use this unneeded complication? What's the point of discussion if you don't explain your reasoning? Btw. I did find your reply about " brilliant efficient OTM verticals" rather personal, weak and annoying. Ursa..
Personal: No way. Weak: Probably because it matches the postings of a contrary nature. And you are correct, the ITM verticals can also become worthless, but long after the OTM's have completely lost their value. Annoying: Who cares?