True, but you didn't make the final comparison yet. Guess what...
Examples demonstrating non-optimal & inefficient trade constructs
- Thread starter Quanto
- Start date
True, but you didn't make the final comparison. Guess what...
Feel free to enlighten the world on your new OptionMaths :-}}
Have you analyzed also what each of these constructs costs, and compared them to each other?... Nope!...
Please let us know the result of also this calculation of yours, by posting it here, for the amusement of us all. Come on pls!
Was I right, or was right?
Have you analyzed also what each of these constructs costs, and compared them to each other?... Nope!...
Please let us know the result of also this calculation of yours, by posting it here, for the amusement of us all. Come on pls!
Was I right, or was right?
Cost is irrelevant with synthetic positions when calculating MaxRisk !
Try applying your theory to other equivalent positions where one trades for a Debit, one trades for a Credit
Bull Calls Spreads for Debit = Bull Put Spreads for a Credit
Call/Put Flies for a Debit = Iron Flies for a Credit
This is fun :-}}
@jamesbp, you just admitted that you have no clue of what you are talking, especially not of the topic in the OP, since now you try to distract by bringing-in other irrelevant contructs...
FYI: Cost is not irrelevant! It's the MOST IMPORTANT METRIC when trading! As the basis for PnL and PnL% calcs.
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I've had enough fun for the day, See You Next Tuesday !
Just fixing a typo in the text: DTE=45 (not DTE=90). Corrected below. All results stay the same.
Examples demonstrating non-optimal & inefficient trade constructs
Knowing about them will save/earn you much money
LongStrangle ITM vs OTM: same result, but ITM costs more than 4x more than OTM !
But result of both at expiration is the same!...
ITM LongStrangle: https://optioncreator.com/stslfcd
S=10DTE=90DTE=45 IV=50 LC.K=9 LP.K=11 both ITM, CostBase=NetDebit is much higher (2.62)
OTM LongStrangle: https://optioncreator.com/stp18w4
S=10DTE=90DTE=45 IV=50 LC.K=11 LP.K=9 both OTM, CostBase=NetDebit is much less (0.62)
Conclusion:
The resulting PnL at expiration for both constructs is identical, but the OTM LongStrangle wins at least 4 times more $ than the ITM LongStrangle, and loses only max about 1/4 of ITM LongStrangle.
Best seen when PnL% is calculated for both using their CostBase and PnL for any Sx at expiration.
Q.E.D.
Anybody know of other such non-optimal / inefficient constructs? Just post it here.
Here are the screenshots of the above constructs:
ITM LongStrangle:
View attachment 331975
OTM LongStrangle:
View attachment 331976
Here my concluding analysis (just confirming what was said already in the OP):
ITM LongStrangle (aka Guts) costs $2.62
OTM LongStrangle costs $0.62
Though both give the same GrossResult, the effective NetResult of the OTM LongStrangle is at least 4 times better due to the 4+ times better CostBase.
The proof is simple: 2.62 / 0.62 = 4.2258 times better (in this example with the said parameters of S, DTE, K, Premium (or IV) etc).
Said differently: when the same amount is invested in these 2 constructs then the result in case of a win for OTM LongStrangle will be 4.2258 times better than for ITM LongStrangle. Ie. a leverage factor of 4.2258.
For example when (hypothetically) $2.62 is invested in both, then the PnL for Sx=16 at expiration is about 18.50 vs 4.38 --> 18.50 / 4.38 = 4.22 times better result. That's the result using fractional Qty to invest the same amount of $2.62 :
ITM LongStrangle (aka Guts) costs $2.62
OTM LongStrangle costs $0.62
Though both give the same GrossResult, the effective NetResult of the OTM LongStrangle is at least 4 times better due to the 4+ times better CostBase.
The proof is simple: 2.62 / 0.62 = 4.2258 times better (in this example with the said parameters of S, DTE, K, Premium (or IV) etc).
Said differently: when the same amount is invested in these 2 constructs then the result in case of a win for OTM LongStrangle will be 4.2258 times better than for ITM LongStrangle. Ie. a leverage factor of 4.2258.
For example when (hypothetically) $2.62 is invested in both, then the PnL for Sx=16 at expiration is about 18.50 vs 4.38 --> 18.50 / 4.38 = 4.22 times better result. That's the result using fractional Qty to invest the same amount of $2.62 :
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You must be hallucinating. B/c how were you able to post your above crap in this my thread then?
You clearly lack some logic, man.But I've enough of your stupid insults. One more insult and you will be blocked by me.
And: it was you who threw the towel when you posted this:
But unlike you, I was not rude nor triumphed over it. That's the difference btw. your character and my character.
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