Search results

Don, I'm talking about pros like market makers who pay interest or get paid interest depending on their position. It is the market makers that price the options so you have to use their "terms". When calculating cost of carry, for pricing purposes, you can use the Fed Funds rate cause it is a...

Just finished talking to TOS, it's not a model a problem. Looks like the market makers are bidding the calls slightly higher causing the IV to be higher. That is, the calls are bid parity, which puts the midpoint higher and thus causing the IV to be higher, but there is still no arb opportunity.

The cost of carry is priced in to the calls based on the put-call parity. If you short the stock then you receive margin interest, if you buy the stock you pay margin interest. A simple example, if you buy the stock and then sell a call and buy a put at the same strike you will create a...

Ok, let's do the calculation (using the midpoints). Since the put is trading at lower IV it is presumably underpriced (the call being overpriced). So in order to arb that we sell a call at 1.9, buy a put at 0.55 and buy the stock at 141.13. This means that we sold the synthetic stock for 141.35...

I see what you mean, but it's not a mispricing. Once you take into account the cost of carry it works out even. On 140 strike the cost of carry is 140*0.0525*10/360=0.20, which is what the profit on the conversion is.

The skew has nothing to do with this. Natural and synthetic use the same strike options, which by definition trade at the same Implied Volatility, otherwise there's an arb to be made.

He's risking 4.167 to make 0.833. Not a great risk/reward ratio. If you ask me, adjusting a losing trade is a loser in itself.

Not in a cash account cause it takes 3 days to settle stock trades. You need a margin account for this.

It's the same as what Richard has pointed out above, he pays almost 1 point premium over the market price for a vertical. That is, 125/130 is currently trading at 3.2 and he pays 4.167.

Coach, I don't think we are trying to argue that he should do one over the other, we are just trying to understand what his motives are for using one over the other. A collar is a position which is designed for a single purpose - hedging a long position in the underlying! If you want to...

That's the beauty of synthetics, whatever you do to a natural you can do to a synthetic. For example, say you have a reverse collar on AAPL with stock at 85, long 90 call and short 80 put. As an intraday scalp you decide to buy the stock back. You will end up with a long 90 call and a short...

I think it's done thru their internal system, i.e. customers trading against other customers (IB guys please correct me if I'm off here).

4Q, I didn't imply that you use the optionetics way or that you are affiliated with them. It was just a poke at the recent synthetics argument that took place there and was not directed at you. Sorry!

4Q, Not to start this synthetics argument again, but a collar is exactly the same as a vertical so you can't say that a vertical is directional. I mean, it can be as directional/directionaless as you want it to be, same goes for a collar. A vertical cannot be more difficult to adjust cause...

It's a FACT that a collar or reverse collar is NOT superior to the synthetic. No need to agree or disagree, unless of course you work for optionetics.:D

I've read thru this thread and I haven't found a single good reason why would you wanna trade a reverse collar instead of a simple vertical!? 4Q, You say you like to short a stock and buy a call...well, just buy a put then! Same thing with less commissions.

This is essentially the same list, except for GLG has been replaced with A, due to GLG's getting delisted. It's a 6-month program, so I guess it'll be at least 6 months before penny pricing is universal.

Right. Anyway, my point is that it is broker specific not industry-wide.

That's true, but that's for spreads not individual options. The pilot program is for individual options to be quoted in pennies.

You may wanna catch up on the industry news. The pilot program for penny increments starts mid-Jan and will run for 6 months.