DITM covered call question and equity market

N

noob_trad3r

If you buy 5000 shares of a stock and write a DITM call with a delta of .80 lets say. for 3 months out

Does the market know you think the stock is only worth so much or not really since they only see that someone bought the stock at the current trading price.

Mainly curious about this.
 
GS could lets say buy a lot of shares to to build a big position and then sell the DITM call that gives 35% downside protection. then a couple of weeks prior to expiration have another team shortsell the stock to drive the price down around 18% and the first team dump the holdings that the calls were written against as well?
 
Post some real time prices from today (stock and option you're considering) and then pick a lower price after the rocket scientist short sellers do their thing. Calculate who made and lost what. Then, you can have a realistic discussion.
 
Quote from noob_trad3r:

If you buy 5000 shares of a stock and write a DITM call with a delta of .80 lets say. for 3 months out

Does the market know you think the stock is only worth so much or not really since they only see that someone bought the stock at the current trading price.

Mainly curious about this.
More...

1) The market only knows that you sold 50 calls

2) The market doesn't know who you are and thus, could not care less what you think, or why you sold the options. Ask yourself why you believe there is the slightest possibility that anyone would care?

3) The option market does not know you own any stock (unless your broker discloses that the order is opening, covered). The only way the market would know you own shares occurs when you did a single transaction 'buy-write.'

4) The only think the market cares about is that it just bought 4000 delta and it's time to hedge the trade.

Mark
http://blog.mdwoptions.com
 
Thanks mark for the reply. It was helpful.

The DITM is nice though the market is going down and my position is offered protection because of the higher delta of the calls. Sure takes out the volatility for sure.
 
Quote from noob_trad3r:

GS could lets say buy a lot of shares to to build a big position and then sell the DITM call that gives 35% downside protection. then a couple of weeks prior to expiration have another team shortsell the stock to drive the price down around 18% and the first team dump the holdings that the calls were written against as well?
More...

Where does GS win in that scenario? One team loses the other wins all they did was move money around on a balance sheet.


The market could care less what an unknown investor is thinking or doing.
 
Quote from noob_trad3r:

If you buy 5000 shares of a stock and write a DITM call with a delta of .80 lets say. for 3 months out

Does the market know you think the stock is only worth so much or not really since they only see that someone bought the stock at the current trading price.

Mainly curious about this.
More...
IMO the market doesn't giva a Sh!t
 
Quote from noob_trad3r:

Thanks mark for the reply. It was helpful.

The DITM is nice though the market is going down and my position is offered protection because of the higher delta of the calls. Sure takes out the volatility for sure.
More...

Your portfolio has the same volatility as if you had sold the naked put: same strike, same expiration date. That's because the positions are equivalent.

As long as covered call remains reasonably ITM - and that means the put would remain OTM - the position has some protection. But it is limited.

Mark
 
Quote from xflat2186:

Where does GS win in that scenario? One team loses the other wins all they did was move money around on a balance sheet.
More...
It's an in house contest to see which trading desk can generate the most volume!

:)
 
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