Dest's TSLA trade
- Thread starter nooby_mcnoob
- Start date
If you were responding to my post, then *shrugs* I don't understand it, but then again, you trade options, so I don't understand your head. You're a crazy rich non-Asian? lol
Because I am not going to trade futures in this account. It's small time. No arbs, etc. It looks strange to go from the size I was trading in the taxable account to the dregs left in my IRA.
Hey dest could you point me in the direction where I can learn about these synthetic relationships such as the synth straddle and fly?
I haven't turned up anything online googling past the basics like synth long/short stock and call/put.
I don't have any book suggestions as it's been so long since I've read Hull.
Puts are calls; calls are puts -- when you involve the underlying. So a put + shares = synthetic long call. Shares - call = synthetic short put. Shares combined with an option (not a spread) convert a call to a put.
Short put + call at a strike = synthetic long shares. Short call + put at a strike = synthetic short shares. Short natural shares + synthetic long shares = reversal arbitrage. Short synthetic shares + long natural shares = conversion arbitrage.
Spread synthetics: long call spread and long put spread (same strikes) = box arbitrage. You can think of it more intuitively as a long synthetic at x (long call; short put at x) and a short synthetic at y (short call; long put at y). Regardless, it's a long call vert and long put vert for a long box (same strikes). A short box is short both verticals.
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Unless you're making a market in a series it's not critical to apply synthetics. A MMer will cross all the boxes and rolls to determine their net risk. It's more of a microstructure issue for price takers trading large books where they don't want to be trading large numbers of ITM options.
Say you'd like to buy 1000 132 call flies in the index and you're looking at the 200/100 strike (widths). You wouldn't want to trade say a 150 point ITM SPX call vertical, so you would derive the spread synthetic.
SPX 2950. Buyer of the 2800/3000/3100 132C fly.
Natural fly: Long one 2800/3000 vertical. Short two 3000/3100 call verticals.
Synthetic fly: Short one 2800/3000 put vertical. Short two 3000/3100 call verticals.
The OTM short vert are identical with either structure. You're swapping the deep ITM call vert with a near ATM put vert (box equivalence).
You trade synthetics to reduce microstructure risk. Especially important in OTC markets (notional trades).
Say you'd like to buy 1000 132 call flies in the index and you're looking at the 200/100 strike (widths). You wouldn't want to trade say a 150 point ITM SPX call vertical, so you would derive the spread synthetic.
SPX 2950. Buyer of the 2800/3000/3100 132C fly.
Natural fly: Long one 2800/3000 vertical. Short two 3000/3100 call verticals.
Synthetic fly: Short one 2800/3000 put vertical. Short two 3000/3100 call verticals.
The OTM short vert are identical with either structure. You're swapping the deep ITM call vert with a near ATM put vert (box equivalence).
You trade synthetics to reduce microstructure risk. Especially important in OTC markets (notional trades).
Trading futures after doing size in options is like cheating on your 10 wife with a 4.
So you are saying futures suck, and options are for teh win?
I suspect what he means is ...
"You don't think much of our Highland tools then?
If I had to kill an ox, cleaver would be my first choice"
I'm going to have to read this a few more times, but fooling around with stuff on TOS in the Analyze tab I was trying to surmise what a "synthetic fly" is before I saw that you responded and the only version I came up with that makes sense to do as opposed to just doing a normal fly is (for a 121 put fly) is to do long wings as puts and the two middle puts as synthetic short puts as long as the call premiums are larger than the same strike's put premiums.
Thanks for the info!