Find the edge :)

ffs1001 said:
A bit of an anti-climax in the end - I was hoping the answer would be something that's actionable, but in the heat of the battle, with prices changing all the time, for a Joe Bloggs retail trader, to be able to calculate the following 6 trades :

1. Buy 200 55 straddles for $4.15
2. Sell 200 55 calls at $2.15
3. Sell 400 60 calls at $1.05
4. Buy 400 65 calls for $.05
5. Sell 200 65 puts at $10.10
6. Sell 3,000 shares of stock for $54.95

.....just to figure out if there is an edge or not, and how much it is and to use it, is a little impractical.
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You can program a computer to figure it out for you if you really want to do it
 
ffs1001 said:
A bit of an anti-climax in the end - I was hoping the answer would be something that's actionable, but in the heat of the battle, with prices changing all the time, for a Joe Bloggs retail trader, to be able to calculate the following 6 trades :

1. Buy 200 55 straddles for $4.15
2. Sell 200 55 calls at $2.15
3. Sell 400 60 calls at $1.05
4. Buy 400 65 calls for $.05
5. Sell 200 65 puts at $10.10
6. Sell 3,000 shares of stock for $54.95

.....just to figure out if there is an edge or not, and how much it is and to use it, is a little impractical.
More...
This is not a drill to practise live trading...well at least not in every day battles.

However it is important for anyone who is into options to know synthetics. It helps to square of positions in an efficient manner and to know how and where to look for edge.

It is not impractical at all. Imagine you looked at the option times and sales for a particular stock and you see that a couple of strikes in a certain term are the flavour of the day.
Probably because someone has to adjust a big position or just wants to punt with size.

Instead of looking at your ToS analyzer to construct a trade you could just join the bid or the offer, execute at edge instead of midpoint and square your position off right away into a structure that has +EV.

Also if you already have a position with a couple dozens of strikes and one of your strikes is trading you could make an instantly profitable adjustment instead of waiting for decay to do its work.

Sometimes skew or term structure is so out of line due to one sided flow that you get close to arb prices or free structures and this is how you profit from that. Before you go through every possible position in your analyzer, you have to trade what's in front of you...and you need to be quick to get the risk out of the trade

Stuff like this is the very basics of options trading and when you get good at it your execution improves by a mile...and you would rather have a shitty plan well executed instead of wasting edge of a good plan.
 
MrMuppet said:
Stuff like this is the very basics of options trading and when you get good at it your execution improves by a mile...and you would rather have a shitty plan well executed instead of wasting edge of a good plan.
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Thanks, @MrMuppet . It'll take me a bit to integrate whatever I can from it, but this was very educational - and wraps pretty well around the exact thing I want to get to.
 
I thought I understood 70% of options. After reading this thread I must scale back that number to 25% as a 1dimen
@MrMuppet and everyone else...Feel free to make more threads like this to spread knowledge
 
Can anyone recommend a good book for learning synthetics. I still have to put it on paper like this.

Put(P) + Stock(S) = Call (C)

Call Butterfly is +C -2C +C
One synthetic would be P + S -2C +C i.e One covered call with married put + Bear call spread.

Maybe work out one synthetic beforehand, practice and be ready when an opportunity presents itself.
 
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emulimu said:
Can anyone recommend a good book for learning synthetics. I still have to put it on paper like this.

Put(P) + Stock(S) = Call (C)

Call Butterfly is +C -2C +C
One synthetic would be P + S -2C +C i.e One covered call with married put + Bear call spread.

Maybe work out one synthetic beforehand, practice and be ready when an opportunity presents itself.
More...
charles cottle: options trading the hidden reality.
 
MrMuppet said:
charles cottle: options trading the hidden reality.
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Yep. Definitely was an eye-opener for me WRT synthetics. And now that I think about it, it also starts with an options thought exercise:

QQQQ is trading at 37.30; the 36 call is going for 1.70 and the 39 put is going for 1.90. A trader buys ten of each. Obviously, this is a good position if there is a large move in either direction but what is the worst-case scenario? Owning ten calls at 1.70 and ten puts at 1.90 is 3.60 ten times making a total investment of $3600 (10 x (1.70 + 1.90) x 100 shares).

So, what is the maximum you can lose and why?
 
BlueWaterSailor said:
Yep. Definitely was an eye-opener for me WRT synthetics. And now that I think about it, it also starts with an options thought exercise:

QQQQ is trading at 37.30; the 36 call is going for 1.70 and the 39 put is going for 1.90. A trader buys ten of each. Obviously, this is a good position if there is a large move in either direction but what is the worst-case scenario? Owning ten calls at 1.70 and ten puts at 1.90 is 3.60 ten times making a total investment of $3600 (10 x (1.70 + 1.90) x 100 shares).

So, what is the maximum you can lose and why?
More...
well...all you need is calculate the ooptionality, which is 20ct for the put (39-1.90 - 37.30) and 40cts for the call (37.30 - 36 -1.70) and that's the premium paid. x10 and you lose 600$ between 36 and 39. It's a synthetic long strangle (long 36 puts and long 39 calls)
 
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