OK, Optionetics is banning me now after every other post. It's kind of hard to have a dialogue over there when they ban you after you disagree with one of their staff writers. So let me post this here and if someone over there wants to copy and paste this they can.
One of the problems we are having here is a communication issue. They are using the wrong language to convey what they are trying to say. This particular phrase keeps popping up, "put/call parity breaks down". Let me define what put/call parity is here. Put/call parity states that calls and puts at the SAME strike have to trade at the same vol otherwise an arb can be had. The only time this will not be the case is with either a pending dividend or if a stock is hard to borrow.
Now, some of the jokers over there are trying to make the argument that put/call parity should hold from the time a spread is put on till expiration. Of course put/call parity only refers to a trade at it's inception and at expiration. Many things can happen between inception and expiration in the interim that can throw this relationship out of balance. That is NOT a violation of put/call parity. Again, put/call parity is only used at the inception of a trade where one has the opportunity to trade it's synthetic counterpart for a risk free arb.
If one then holds the trade all the way through to expiration, the relationship will hold. Now, somehow this got mixed up in the conversation about collars and bull call spreads where many over there were convinced that put/call parity is violated through the collar under some circumstances. Of course this is hogwash, as if that were the case, I could buy the collar and sell the corresponding call spread for a risk free profit.
Then the response was, well after a huge drop in the stock price, put/call parity is being violated at that given time. Again, this is false. because if one were to go into the marketplace at that time and initiate a spread, put/call parity would be sound.
Yes, the original spread would deviate because the interest rate component has changed. One is able to relieve themselves of paying the carry and can offset their trade. This is NOT a violation of put/call parity because this was not known when the trade was entered nor could have one arbed this from the onset.
This of course is becoming increasingly frustrating going back and forth when these so called option experts keep saying that the collar is somehow cheating the put/call parity rule with it's synthetic counterpart.
Then of course there is this rolling down of the calls being termed dynamic hedging which is almost equally as comical. Dynamic hedging refers to one being able to mantain delta neutrality through the life of the position. Selling call spreads as a stock is dropping has nothing to do with dynamic hedging.
Anyway, I use to criticize ET alot about the censorship here and I was way off. ET is heaven compared to that Optionetics site. If you call someone a village idiot over there you are banned for life. LOL. Or if you just disagree with one of the staff writers. My God, it's like the old USSR over there. Anyway, if anyone from that thread over there wishes to discuss this here, they can feel free. Have at it.
One of the problems we are having here is a communication issue. They are using the wrong language to convey what they are trying to say. This particular phrase keeps popping up, "put/call parity breaks down". Let me define what put/call parity is here. Put/call parity states that calls and puts at the SAME strike have to trade at the same vol otherwise an arb can be had. The only time this will not be the case is with either a pending dividend or if a stock is hard to borrow.
Now, some of the jokers over there are trying to make the argument that put/call parity should hold from the time a spread is put on till expiration. Of course put/call parity only refers to a trade at it's inception and at expiration. Many things can happen between inception and expiration in the interim that can throw this relationship out of balance. That is NOT a violation of put/call parity. Again, put/call parity is only used at the inception of a trade where one has the opportunity to trade it's synthetic counterpart for a risk free arb.
If one then holds the trade all the way through to expiration, the relationship will hold. Now, somehow this got mixed up in the conversation about collars and bull call spreads where many over there were convinced that put/call parity is violated through the collar under some circumstances. Of course this is hogwash, as if that were the case, I could buy the collar and sell the corresponding call spread for a risk free profit.
Then the response was, well after a huge drop in the stock price, put/call parity is being violated at that given time. Again, this is false. because if one were to go into the marketplace at that time and initiate a spread, put/call parity would be sound.
Yes, the original spread would deviate because the interest rate component has changed. One is able to relieve themselves of paying the carry and can offset their trade. This is NOT a violation of put/call parity because this was not known when the trade was entered nor could have one arbed this from the onset.
This of course is becoming increasingly frustrating going back and forth when these so called option experts keep saying that the collar is somehow cheating the put/call parity rule with it's synthetic counterpart.
Then of course there is this rolling down of the calls being termed dynamic hedging which is almost equally as comical. Dynamic hedging refers to one being able to mantain delta neutrality through the life of the position. Selling call spreads as a stock is dropping has nothing to do with dynamic hedging.
Anyway, I use to criticize ET alot about the censorship here and I was way off. ET is heaven compared to that Optionetics site. If you call someone a village idiot over there you are banned for life. LOL. Or if you just disagree with one of the staff writers. My God, it's like the old USSR over there. Anyway, if anyone from that thread over there wishes to discuss this here, they can feel free. Have at it.