How much do you have to know?

[The Big D]

Quote from Cache Landing:


The problem comes in the fact that a synthetic long stock created by a short put/long call must be rolled out each month.

Well, no shit! Too bad all the people claiming they're equivalent continually miss this point. In order to create a similar position with options, you have to do a lot more than just sell a put. You first have to create synthetic stock when the strategy would just hold stock. Obviously that can be done several ways, some more similar to the underlying than others. Then you have to SELL that synthetic stock and replace it with a short put. If that short put expires ITM (which would happen roughly 1/2 the time in an efficient market), you then have to sell the resulting underlying, replace it with more synthetic stock, and sell THAT the next time you want to buy your short put. Lather, rinse, repeat. And of course if your synthetic stock ever expires before you replace it with selling a put, you'll be left underlying, and have to sell THAT and replace it with more synthetic stock.

It's not just selling one put, no matter what the options weenies keep saying.

And even when you do that, you're going to be buying and selling volatility at different times than the basic CC strategy, so your results are going to only be similar, not the same. And the dividends can work out slightly differently, although with a reliable dividend stock like LLY it will be pretty close. Oh, and you're going to take it in the ass in terms of commissions and gap of course.

In other words, while it is possible to create options positions that mimic CC strategies, it's much more complicated than the options weenies suggest, involves more than just selling puts, and is a horrible idea to boot.

 

[traderlux]

Quote from The Big D:

Yes you did - owning puts AND the underlying is different than owning just puts.

However, you HAVE proved that you can't read any better than the other weenies.

...i dont think rancap said any thing about owning puts AND the underly, or even owning puts at all...

...if i mis-read something, i apol in adv...

...

.....

 

[Cache Landing]

Quote from The Big D:

Well, no shit! Too bad all the people claiming they're equivalent continually miss this point. In order to create a similar position with options, you have to do a lot more than just sell a put. You first have to create synthetic stock when the strategy would just hold stock. Obviously that can be done several ways, some more similar to the underlying than others. Then you have to SELL that synthetic stock and replace it with a short put. If that short put expires ITM (which would happen roughly 1/2 the time in an efficient market), you then have to sell the resulting underlying, replace it with more synthetic stock, and sell THAT the next time you want to buy your short put. Lather, rinse, repeat. And of course if your synthetic stock ever expires before you replace it with selling a put, you'll be left underlying, and have to sell THAT and replace it with more synthetic stock.

It's not just selling one put, no matter what the options weenies keep saying.

And even when you do that, you're going to be buying and selling volatility at different times than the basic CC strategy, so your results are going to only be similar, not the same. And the dividends can work out slightly differently, although with a reliable dividend stock like LLY it will be pretty close. Oh, and you're going to take it in the ass in terms of commissions and gap of course.

In other words, while it is possible to create options positions that mimic CC strategies, it's much more complicated than the options weenies suggest, involves more than just selling puts, and is a horrible idea to boot.

Whoah.... your lack of understanding is what is confusing you it seems. I'm not trying to be rude, just trying to help you understand.

You aren't buying and selling vol at different times. So the vol argument is a moot point. If you already own the stock (or were assigned the stock) simply sell a call if you'd like. But you should realize that to replicate the long stock you only need to buy a call and sell a put simultaneously. To switch that to a synthetic CC you don't have to liquidate the synthetic underlying, you simply offset the long call, which leaves you with a naked put. It is no more complicated than owning the underlying and selling the same call against it. Understand, it really is the exact same thing, or people would be arbing it to death all day long, including myself.

I think that is the point where you are getting confused a bit.

Everything is done in the same quantities, at the same times, so there isn't an inherent disadvantage in either, until it comes to taxes and buying power. If you are long the underlying and you hold over several years, tax is deferred until the year of liquidation. OTOH, the synthetic must pay taxes every year. So that obviously favors the CC for the buy and hold guy, but is a wash for the active trader.

In favor of the naked put is that the CC is very capital intensive. It takes several times more cash sitting idle in your brokerage account to collateralize a covered call than it does a naked put. I'm not suggesting that this allows someone to increase the number of puts, but rather that they can invest the excess capital in highly liquid fixed income and add to their annual returns.

 

[The Big D]

Quote from Cache Landing:

But you should realize that to replicate the long stock you only need to buy a call and sell a put simultaneously.

Round and round in circles we go. I GET THAT. I understand synthetic stock - better than anyone else on this thread clearly.

The original claim was that you just had to sell a put to replicate a CC strategy. Now we're buying calls. So the original claim was WRONG - just selling puts isn't enough.

 

[spindr0]

Quote from The Big D:
]So the solution to replicating the underlying with puts is to hold the underlying? Uhh, that's nice My point all along has been that the underlying is a key part of this strategy and can't just be replaced with a put. Some people are having a hard time grasping that, and I'm having a good time laughing at them.

Having another difficult bizarro world day with your reading comprehension?

Selling a deep ITM put gives you the same result (actually a better result if you receive any time premium) than owning the stock outright as long as the stock price does not exceed the strike. We all know that you don't get it but it's a slow day and you're the only entertainment here today.

So to repeat, you can replicate any position via equivalence. As stated by many, it may not be a desireable way to achieve the positon because of margin, slippage, commissions, etc. but the risk profile will be the same. Deal with it

 

[Cache Landing]

Quote from The Big D:

Round and round in circles we go. I GET THAT. I understand synthetic stock - better than anyone else on this thread clearly.

The original claim was that you just had to sell a put to replicate a CC strategy. Now we're buying calls. So the original claim was WRONG - just selling puts isn't enough.

I suggest that you be a bit more likeable here. You actually might learn something on occasion. Contrary to what you might think, you aren't the smartest guy in the room.

Let me ask one question that might clear things up a bit. Does the hypothetical CC strategy always assume that the underlying stock position is covered by a short call?

 

[spindr0]

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Quote from Cache Landing:

But you should realize that to replicate the long stock you only need to buy a call and sell a put simultaneously.
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Quote from The Big D:

Round and round in circles we go. I GET THAT. I understand synthetic stock - better than anyone else on this thread clearly.

The original claim was that you just had to sell a put to replicate a CC strategy. Now we're buying calls. So the original claim was WRONG - just selling puts isn't enough.

One poster stated that a NP is equivalent to a CC. That's correct.

Another stated that a long call and a short put is the synthetic equivalent to long stock.

And from those two comments, you conclude that NP's and CC's aren't equivalent (the first statement) because long calls are needed to create synthetic stock (the second statement)??? Do you have any clue that these are two different positions with different outcomes?

At this point, the only thing that makes sense is that you're a troll who is intentionally stirring things up because I can't believe that you're this dense.

 

[Cache Landing]

Quote from The Big D:

Then you have to SELL that synthetic stock and replace it with a short put. If that short put expires ITM (which would happen roughly 1/2 the time in an efficient market), you then have to sell the resulting underlying, replace it with more synthetic stock, and sell THAT the next time you want to buy your short put. Lather, rinse, repeat. And of course if your synthetic stock ever expires before you replace it with selling a put, you'll be left underlying, and have to sell THAT and replace it with more synthetic stock.

BTW, it is comments like this that suggest you really don't understand the topic being discussed. Anyone who truly understands the topic would know right off hand what is wrong with this statement. So your supposition that you know more about synthetics than anyone here, is obviously incorrect to anyone who actually does know much about synthetics.

That is why you're running into so much criticism.

 

[The Big D]

Quote from Cache Landing:

I suggest that you be a bit more likeable here

Why would I want to be likable? I'm making fun of options weenies who can't read, which is highly entertaining Likable has nothing to do with it.

 

[The Big D]

Quote from Cache Landing:

BTW, it is comments like this that suggest you really don't understand the topic being discussed. Anyone who truly understands the topic would know right off hand what is wrong with this statement. So your supposition that you know more about synthetics than anyone here, is obviously incorrect to anyone who actually does know much about synthetics.

That is why you're running into so much criticism.

It's really not that hard. When your synthetic stock reaches expiration (and it will, some of the time) you're left with real stock. If you want to continue with synthetic stock, you'll have to sell the real stock. Or I suppose you could sell just before expiration, and eat yet another gap.

Or you could just take the hint your options are trying very hard to give you, and own the underlying