"Bright Trading"
- Thread starter habari
- Start date
It's just tough to find such a significant edge any more. If you price out the call/put and stock for almost every stock, you will be very close to fair value for the 3 way conversion (an unfortunate fact of life these days)..and we just don't encourage giving away the edge to others.
If you're making good money, then by all means, continue.....we just don't encourage it.
Good Luck!!
Don
Don, what is a 3 way conversion? r u talking about a atm straddle covered? a normal conversion or what?
wouldnt a tight spread show less of a edge to give away to execute?
A conversion is the most basic of all option trades to determine valuation. You sell the calls, buy the puts and buy the stock (3 way). The floor traders prefer to do the the other side called a "reversal" or "reverse conversion." This way they get interest on the short stock they sell.
If you do the calculation, you'll see that even if the calls show that they are "over value" - the puts will show the same "over value." This causes the whole thing to be priced fairly. This allows the floor traders to take on massive positions which are completely "hedged."
Don
Don,
You might want to know your "3 way conversion" is a silly way to describe a conversion, and as far as floor traders, do you think they are interested in putting on 3 legs of somthing for nothing?
thats ridiculas, and by the way, pit traders only trade conversions on expiration.
You might appreciate the fact that the floor traders make a tight market and shouldnt let your ignorance of options stand in the way of your customers possible desire to use them.
Excuse me if I beg to differ, and having traded options on the floor for over a decade, let me tell you that the professional traders rely on 3 way conversions constantly to hedge into a FV position while taking advantage of the uninitiated customers trying to follow some silly and outdated trading notion.
Secondly, I don't have any "customers" - only serious equity traders who want to make a good living in the business. My option buddies include the likes of Blair Hull and other icons in the industry, so I would suggest you keep your irritating comments to yourself, and check your references.
(apologies to other board members, but this guy has some sort of agenda, and I'm a bit cranky this morning).
Anytime you would like to debate option strategies, in a public place, let me know.
Don
Gee, now I find this out? Boy did I (and a lot of others) waste a lot of time. Where was this guy when I could have used this insightful knowledge while we were actually trying to put these trades on every single day for years on the CBOE??? Sometimes we even did. I guess I should give back the money. I just don't know to whom to make out the check!
Yeah, no kidding....I'm not sure what his deal is (probably selling some option system)...but he came on a little strong.
Don