Buying/Selling Options

[Maverick74]

Quote from daddy'sboy:

I've heard from quite a large number of traders (many claiming to have made/are making good money using the strategy) that Lord's book on collars and dynamic hedging is excellent (albeit a little more expensive than your average options text). It's been described as a very practical, step-by-step guide on how to trade collars/married puts.
Have you read it?
If so, why do you think it's 'crap'?
Cheers
daddy's boy

Do you know what a collar is? No, seriously, do you? All a collar is is a synthetic put spread. Yup, a bull put spread. I don't care how practical it is, you can't sell a book for $500 that teaches you how to put on a bull put spread. It goes against all laws of common decency.

And while I have not read his book on collars, I did read his $500 book on ratio spreads (borrowed a copy). That thing was so riddled with errors and falsehoods, it was a joke. It's a good thing he did not try to mass market those book or he would probably be sued or be in prison.

 

[taowave]

Quote from Maverick74:

Do you know what a collar is? No, seriously, do you? All a collar is is a synthetic put spread. Yup, a bull put spread. I don't care how practical it is, you can't sell a book for $500 that teaches you how to put on a bull put spread. It goes against all laws of common decency.

And while I have not read his book on collars, I did read his $500 book on ratio spreads (borrowed a copy). That thing was so riddled with errors and falsehoods, it was a joke. It's a good thing he did not try to mass market those book or he would probably be sued or be in prison.

Mav,a collar isnt a synthetic put spread unless your delta goes to one and you offset it with stock.....Then,depending on your definition you may have the equivalant position as being short the put spread

On another note,if you have been trading for all of 6 months and are thinking of trading options for increased leverage,I would strongly reccomend you rethink that plan...

 

[MTE]

Quote from taowave:

Mav,a collar isnt a synthetic put spread unless your delta goes to one and you offset it with stock.....Then,depending on your definition you may have the equivalant position as being short the put spread

On another note,if you have been trading for all of 6 months and are thinking of trading options for increased leverage,I would strongly reccomend you rethink that plan...

U kidding, right!?

A collar is a synthetic bull put spread which is a synthetic bull call spread, which is a synthetic collar and so on and so forth...

It's just a matter of how you dissect the position.

 

[Maverick74]

Quote from taowave:

Mav,a collar isnt a synthetic put spread unless your delta goes to one and you offset it with stock.....Then,depending on your definition you may have the equivalent position as being short the put spread

On another note,if you have been trading for all of 6 months and are thinking of trading options for increased leverage,I would strongly recommend you rethink that plan...

Let's walk through this. Say stock is at 77.00 You sell the Jan 80 call for .75 and buy the Jan 70 put for .50. You now have a collar on for a .25 credit.

Anytime you have stock and options you automatically have a synthetic. In this case, we can create two synthetics.

Let's start with the Jan 70 put. Long stock and long put is a synthetic long call. In this case, you are synthetically long the Jan 70 call for 7.50 and short the Jan 80 call for .75. You are long the call vertical for a 6.75 debit.

Now, let's do the Jan 80 call. Long stock and short call is a synthetic short put. So long stock at 77 and short the jan 80 call at .75 means you are short the Jan 80 put for 3.75. So now you have a short Jan 80 put and long Jan 70 put. You are short the put spread for a 3.25 debit.

Now to double check the math, we add the put spread and the call spread to create the Jan 70/80 box which should equal 10 pts. The call vertical is 6.75 and the bull put spread is 3.25 (6.75 + 3.25 = 10.00) So the math works out.

So to sum up, the collar is indeed the same as either a long call spread or a short put spread.

 

[daddy'sboy]

Quote from Maverick74:

Do you know what a collar is? No, seriously, do you? All a collar is is a synthetic put spread. Yup, a bull put spread. I don't care how practical it is, you can't sell a book for $500 that teaches you how to put on a bull put spread. It goes against all laws of common decency.

And while I have not read his book on collars, I did read his $500 book on ratio spreads (borrowed a copy). That thing was so riddled with errors and falsehoods, it was a joke. It's a good thing he did not try to mass market those book or he would probably be sued or be in prison.

Thanks for the lesson in synthetics, lol. I think it's fairly obvious to most that a collar is a synthetic short bull put spread or long bull call spread, lol, and that a married put is a synthetic long call. My question wasn't about what a collar is but more about your opinion on why the book is 'crap' and how you came to arrive at that opinion.
I have read the book and found it to be quite informative (it doesn't just teach you 'how to put on the spread' but how to manage it, something that I haven't come across in any other texts) but was hoping to get some feedback in regards to the book's claim that collars are superior to trading the equivalent synthetic option spreads. Looks like I won't get my answer here, lol, but thanks anyway.
Cheers
daddy's boy

 

[RichardRimes]

hey DB there was quite a bit of discussion on this topic on the option club (yahoo)where I think it was pointed out very clearly (and convincingly) that NO WAY are collars "superior". If Lord is saying they are superior then I think he is dead wrong, as far as "dynamic" hedging, management of any option position can be as complex or as simple as you want it to be. I think any book or person that claims one position or type of option trade for ALL markets or equities/whatever is full of it. The more you know/learn the more you realize it just isn't that easy. No substitution for experience, trial and error.

 

[RichardRimes]

Quote from pcgeek86:

Do you have any book recommendations or other areas I could learn? At the moment, I'm going off of what I can find on various websites such as MorningStar.com and Investopedia.com. Both those sites and others have been most helpful to me while learning about the stock market.


@Linda: Thanks. I'll check out that book on Amazon. I can't really afford expensive seminars ATM :-|

Thinkorswim offers FREE seminars. "Beyond the basics" all day, portfolio management, options in your IRA...all free and no sales pitch. Good place to start. Linda means McMillian's "Options as a strategic Investment". half.com is cheaper than amazon and there is a workbook for the 1st 25 chapters. Phil's book is very good especially if you also want to use equities with your option trades...he covers collars, ratio spreads etc and many examples of how to capture profit on a winning trade and letting it run for more. His next book will deal with cross month fly's and double diagonals with a full twist

 

[taowave]

Quote from Maverick74:

Let's walk through this. Say stock is at 77.00 You sell the Jan 80 call for .75 and buy the Jan 70 put for .50. You now have a collar on for a .25 credit.

Anytime you have stock and options you automatically have a synthetic. In this case, we can create two synthetics.

Let's start with the Jan 70 put. Long stock and long put is a synthetic long call. In this case, you are synthetically long the Jan 70 call for 7.50 and short the Jan 80 call for .75. You are long the call vertical for a 6.75 debit.

Now, let's do the Jan 80 call. Long stock and short call is a synthetic short put. So long stock at 77 and short the jan 80 call at .75 means you are short the Jan 80 put for 3.75. So now you have a short Jan 80 put and long Jan 70 put. You are short the put spread for a 3.25 debit.

Now to double check the math, we add the put spread and the call spread to create the Jan 70/80 box which should equal 10 pts. The call vertical is 6.75 and the bull put spread is 3.25 (6.75 + 3.25 = 10.00) So the math works out.

So to sum up, the collar is indeed the same as either a long call spread or a short put spread.

I agree with you 100%... When I price a collar,I just refer to the options,so that is where the confusion came from....It appears your collar includes the stock..

 

[Maverick74]

Quote from daddy'sboy:

Thanks for the lesson in synthetics, lol. I think it's fairly obvious to most that a collar is a synthetic short bull put spread or long bull call spread, lol, and that a married put is a synthetic long call. My question wasn't about what a collar is but more about your opinion on why the book is 'crap' and how you came to arrive at that opinion.
I have read the book and found it to be quite informative (it doesn't just teach you 'how to put on the spread' but how to manage it, something that I haven't come across in any other texts) but was hoping to get some feedback in regards to the book's claim that collars are superior to trading the equivalent synthetic option spreads. Looks like I won't get my answer here, lol, but thanks anyway.
Cheers
daddy's boy

I thought it was pretty obvious what I thought of his book. A $500 book about verticals? Come on, you can answer this one yourself. I am basing my opinion of the book on his other crap book about ratio spreads which I did read and was full of errors, exaggerations, hyperbole, and outright lies. How this guy gets away with saying what he does is beyond me. Lawsuit waiting to happen if you ask me.

And let me walk you through this a little further. A collar cannot be superior to it's synthetic equivalent for one simple reason, MARGIN!!!!! In a retail account, anytime you buy long stock, you are killing your ROI. The synthetic actually requires a fraction of the margin. I think that Lord guy was smoking something strong when he wrote that book.

 

[daddy'sboy]

Maverick wrote:
" A collar cannot be superior to it's synthetic equivalent for one simple reason, MARGIN!!!!! In a retail account, anytime you buy long stock, you are killing your ROI."
That's exactly what was bugging me, yet some continue to argue that the collar is superior to the synthetic, but their explanations didn't really make sense to me and went along the lines of being able to roll the protective puts up (to lock in profit) when the stock advanced or down (to collect intrinsic value with which to buy more stock) when the stock pulled back. In essence exploiting the stock's oscillation over time - the more violent the oscillations the more the compounding of the profits. However, it seems that all these adjustments can be replicated with the equivalent options spread anyway, so why the collar should be superior didn't make sense to me. However, when ex marketmakers (3 different ones) espouse the virtues of collars/married puts over the equivalent option spreads, I find it difficult to argue (I'm only a retail trader with limited experience).
Thanks all for your replies.
Cheers
daddy's boy