basic synthetics questions

B

bigbiscuit

Say I'm long 1 GBP/USD future, how do I adjust and create a synthetic straddle?

Secondly, if an iron fly has exactly the same risk profile as a regular long fly, why would you pay a debit for the long fly rather than receive a credit for the other?

And lastly, could someone clarify the terminology used to describe, say an ATM short straddle...
Is it short vega, long gamma, short theta? or what.. this bit always gets me.

thanks in advance
 
Long straddle - Long 2 Puts
Short straddle - Short 2 Calls

Paper Trade so you can learn at a lower cost to your account.
 
thanks for that... a little bit of confusion still left though...
say I'm long GBP from 1.9900, and I sell two calls at 2.000, am i synthetically short the straddle at 1.9950?
 
Quote from bigbiscuit:

Say I'm long 1 GBP/USD future, how do I adjust and create a synthetic straddle?

Secondly, if an iron fly has exactly the same risk profile as a regular long fly, why would you pay a debit for the long fly rather than receive a credit for the other?

And lastly, could someone clarify the terminology used to describe, say an ATM short straddle...
Is it short vega, long gamma, short theta? or what.. this bit always gets me.

thanks in advance
More...
atm short straddle is short gamma, short vega, long theta. In layman's terms the short straddle benefits from the passage of time, a fall in volatility and a range bound underlying (short gamma).
Iron fly vs regular long fly. Both have same risk profile. No advantage of one over the other. Iron condors, otoh, have the slight advantage of not needing to be closed out if you're right (expires worthless), thus saving on some commissions. Whereas your regular condor will need to be closed and thus attract commission.
Synthetic straddle:
1 long underlying + 2 long puts
gives you the following synthetic:
1 long call + 1 long put
i.e. your long synthetic straddle
Cheers
db
 
Quote from bigbiscuit:

thanks for that... a little bit of confusion still left though...
say I'm long GBP from 1.9900, and I sell two calls at 2.000, am i synthetically short the straddle at 1.9950?
More...
Use the following formula for all your synthetic calculations:
long underlying + long put = long call
You can rearrange this to:
long put = long call + short underlying
etc.
Your example:
1 long GBP - 1 call = -1put
If you then add a second short call you get:
-1 put - 1 call
i.e. you are short the straddle and the straddle strike is 2.0 NOT 1.9950.
db
 
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