Calls vs Synthetics

[KohPhiPhi]

Let's imagine the following scenario:

Your outlook on a particular security is bullish in the long term (2 years), but you reckon there might be some volatility in the short term (next few months) from which you want to protect yourself.

Based on this, which of the following two positions would you prefer from a theoretical point of view?

1. Keep it simple: just buy a 2-year ITM call
2. Go synthetic: buy a 2-year ATM call + sell a 2-year ATM put (synthetic), plus buy a 6-month ATM put (protection)

Thank you!

 

[caroy]

Let's imagine the following scenario:

Your outlook on a particular security is bullish in the long term (2 years), but you reckon there might be some volatility in the short term (next few months) from which you want to protect yourself.

Based on this, which of the following two positions would you prefer from a theoretical point of view?

1. Keep it simple: just buy a 2-year ITM call
2. Go synthetic: buy a 2-year ATM call + sell a 2-year ATM put (synthetic), plus buy a 6-month ATM put (protection)

Thank you!

3.? Poor man's covered call. Buy the 2 year leap sell a call against it every couple of months over the next two years.

 

[newwurldmn]

Let's imagine the following scenario:

Your outlook on a particular security is bullish in the long term (2 years), but you reckon there might be some volatility in the short term (next few months) from which you want to protect yourself.

Based on this, which of the following two positions would you prefer from a theoretical point of view?

1. Keep it simple: just buy a 2-year ITM call
2. Go synthetic: buy a 2-year ATM call + sell a 2-year ATM put (synthetic), plus buy a 6-month ATM put (protection)

Thank you!

Why not just buy the stock? Or buy some of the stock now and some later when the volatility causes it to sell off.

if you shared the stock and your thesis, you’d get really constructive answers to your question.

 

[taowave]

What's your thoughts on 6 month ATM vol vs 2 year ATM?? Would you be a buyer or seller of the 6 month vs 2 year ATM calendar?? Thats your answer

Let's imagine the following scenario:

Your outlook on a particular security is bullish in the long term (2 years), but you reckon there might be some volatility in the short term (next few months) from which you want to protect yourself.

Based on this, which of the following two positions would you prefer from a theoretical point of view?

1. Keep it simple: just buy a 2-year ITM call
2. Go synthetic: buy a 2-year ATM call + sell a 2-year ATM put (synthetic), plus buy a 6-month ATM put (protection)

Thank you!

 

[taowave]

Yeah,I thought the naked call was ATM..

The long synthetic + put = 1 but diagonalized. Why not simply trade the 2Y bull verticals? There is no utility in the synthetic here.[/QUATM..

 

[destriero]

Yeah,I thought the naked call was ATM..

It is. I was editing to calendar from diag and figured I'd delete it.

There is no utility in the synthetic. I suppose if you were clearing some shady firm and shorting at market borrow (short synthetic) to avoid HTB it would make some sense bc of the embedded carry in the synthetic.

Long the 2Y synthetic and long the 6m put are plays on event(s) vol, switch, gamma. I get why the OP is going with 6m bc it's cheaper... so why not buy equal notional in the bull vertical?

 

[destriero]

It is. I was editing to calendar from diag and figured I'd delete it.

There is no utility in the synthetic. I suppose if you were clearing some shady firm and shorting at market borrow (short synthetic) to avoid HTB it would make some sense bc of the embedded carry in the synthetic.

Long the 2Y synthetic and long the 6m put are plays on event(s) vol, switch, gamma. I get why the OP is going with 6m bc it's cheaper... so why not buy equal notional in the bull vertical?

Why not arrive at your stop loss ($) and buy equal notional and deltas in the 2Y call spread?

 

[destriero]

Why not arrive at your stop loss ($) and buy equal notional and deltas in the 2Y call spread?

Again, to elaborate. Suppose you were split-strike--divergent from same strike synthetic to risk-reversal -> trade becomes a collar which is just a synthetic bull vertical anyway.

 

[newwurldmn]

@taowave, @destriero You are wasting a lot of bytes trying to figure out what this guy is doing.

 

[KohPhiPhi]

Thank you for the responses.

My rationale to consider buying a shorter term put against the long term synthetic stock was to cherry pick the specific moments where I feel there might be some volatility without having to pay the full price of the 2-year long call. That way I walk into the trade somewhat protected, giving it some time to tell me whether my thesis was right or wrong. After a few months and assuming that my thesis was indeed right, I would manage it from there knowing that upside remains uncapped.

Does such approach hold merit?