If you did not FULLY understand what you just did, you may not have made the correct trade. Not saying you didn't. But not fully understanding, could create problems in the future. Hand holding buy your broker (if they allow it) may be needed at this time...
Are there advantages to selling calls at several strike prices?
- Thread starter MathTeacher
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If you did not FULLY understand what you just did, you may not have made the correct trade. Not saying you didn't. But not fully understanding, could create problems in the future. Hand holding buy your broker (if they allow it) may be needed at this time...
I fully understand that I bought 5 puts.
I fully understand that I own 500 shares of XOM.
I fully understand that I own 500 shares of XOM.
It is. The synthetic is simply the arbitrage-equivalence when adding a share position. "What is the difference between a put and a call...? Shares"
To convert a put to a call -> long 100P -> long 100P +100 shares -> long synthetic 100C. They are identical (conversion mkt).
The uses in the mkt are how it defines equivalence against shares, that conversion utility (rate arbs), arbitrage equivalence and by extension, application of rate arbs to lend and borrow cheaply (beyond the scope of this thread) or to trade a spec-view on rates outright.
Yes. You are long 5 x 111C.
Now if you short say 5 x 125C at 0.4 you've reduced the price of that synthetic 111 call by 40 cents. The result is that you would be long a 5-lot 111/125 call spread (via the synthetic). You have no upside risk, but your terminal gains are capped at 125. No different than had you bought the 111/125 call spread outright.
There is no difference (practically) between a "natural" position and the synthetic.
It's useful to understand synthetics so you can confidently add optionality.
I am long 5 x 111C
Why do some people just refer to that as "protective puts"?
Yes. It is useful and I am starting to understand.
It seems like in most of your analysis you like spreads.
I'm trying to convert from a "buy and hold" investor to one who more actively tries to make money.
Why do some people just refer to that as "protective puts"?
Yes. It is useful and I am starting to understand.
It seems like in most of your analysis you like spreads.
I'm trying to convert from a "buy and hold" investor to one who more actively tries to make money.
Let me start off by saying that I have always been a "buy and hold" investor.
So I started selling (writing) covered calls because I was trying to create some income rather than just watch.
You're long a synthetic 110C. Don't listen to people that don't understand proper nomenclature. Using synthetics is best practice.
There are traders out there that will short the inside strangle (110C, 120P) over the outside (110P, 120C) because they believe the added credit is an edge. The difference between the two is the box arbitrage. They are equivalent. The importance of which is that their credits should only differ by the strike-diff (and credit impact in rates).
Same with people recommending put and call calendars at a strike as they are "covering both sides" when in fact they are simply doubling size.
Let me try...
If XOM went to 130 I would sell covered calls at strike prices of 135, 130, 125, 120, 115
(my puts would be worthless)
If XOM went to 100 I would consider selling my puts,, maybe put brackets on them (they expire on Friday) and I would likely just hold my XOM.
If XOM went to 130 I would sell covered calls at strike prices of 135, 130, 125, 120, 115
(my puts would be worthless)
If XOM went to 100 I would consider selling my puts,, maybe put brackets on them (they expire on Friday) and I would likely just hold my XOM.
I think in anything they call it a teachable moment...