How to trade volatility?

positive etc · Oct 3, 2018

Robert Morse said:
silver182,

ssp729 start with "Hello everyone. I am a newbie trader." I'm sorry, but no newbie (I hate that word) trader should be selling naked puts.

ChimpTrader · Oct 3, 2018

sle said:
So far nothing you said has any practical application, it's the usual ET-babble. There is obviously a lot of nuance in synthetic vs cash ownership such as voting rights, the treatment of the corporate actions etc. For most retail traders such as yourself these details are irrelevant and there is no real difference.

Hmm.... I hate to show-off with mombo-jumbo. Noticed your post today. But folks who agree onto this

destriero said:
Covered calls = writing puts.

or

destriero said:
And FWIW, anyone that knows the answer to the following can request via PM my TDA IRA PNL to date:

What position is equivalent to long 100 shares and long one put?

b) long call

must get their Option 101 revisited, as, they do not understand Put-Call Parity. Although, in theory it does not exist for American Options but think deep, you will get it. IV% of Call or Put option is not same at a strike - one might live-off with OTM IV% as proxy for the IV% of that Strike but in real practical world they are not the same.

Put-Call Parity Equation states:

Code:

P(t) + S(t) = C(t) + K.B(t,T)

Where,
P(t) is the value of the put of the same expiration date,
S(t) is the spot price of the underlying asset,
C(t) is the value of the call at time t,
K is the strike price, and,
B(t,T) is the present value of a zero-coupon bond that matures to $1 at time T. This is the present value factor for K.

Notice L.H.S. of the equation is equivalent to Protective Put, isn't it? Now chime in the IV% to this equation. Can you any longer say Protective Put and a Naked Call are same? You are missing the "Risk-free interest" on the R.H.S. Similarly, Covered Call is not same as Writing Puts.

None of you, so far, for even once mentioned risk-free Bond. That's why I mentioned Buffett is Buffett! That's all he did throughout his life - Covered Calls/Protective Puts. He did not just go and buy naked Calls as a replacement of Protective Put simply because the direction of their pay-off diagram matches. You CANNOT mitigate the risk by doing so. PERIOD.

On one hand you have a Gambler and on the other you have a well hedged Trader or an Investor. Speculators fade away just like the wind.

destriero said:
I corrected him. You decided to expose yourself and prove your ignorance. Thanks for the support!

Yeah! This ignorance helps keep my mind clean and be consistent on my strategy. Happy to be ignorant than to be cluttered with clouds of over-confidence to take irrational decisions.

destriero said:
C'mon, sle. The guy can't derive a synthetic and you're going to introduce share-classes? Wait... what happened to Santa?

You might call Options with whatever God-damn name that pleases you - whether it's synthetic, aesthetic butterfly or a dinosaur, at the EOD Greeks rule on the hindsight of Option fundamentals.

newwurldmn · Oct 3, 2018

ChimpTrader said:
Hmm.... I hate to show-off with mombo-jumbo. Noticed your post today. But folks who agree onto this

or

must get their Option 101 revisited, as, they do not understand Put-Call Parity. Although, in theory it does not exist for American Options but think deep, you will get it. IV% of Call or Put option is not same at a strike - one might live-off with OTM IV% as proxy for the IV% of that Strike but in real practical world they are not the same.

Put-Call Parity Equation states:

Code:

P(t) + S(t) = C(t) + K.B(t,T) Where, P(t) is the value of the put of the same expiration date, S(t) is the spot price of the underlying asset, C(t) is the value of the call at time t, K is the strike price, and, B(t,T) is the present value of a zero-coupon bond that matures to $1 at time T. This is the present value factor for K.

Notice L.H.S. of the equation is equivalent to Protective Put, isn't it? Now chime in the IV% to this equation. Can you any longer say Protective Put and a Naked Call are same? You are missing the "Risk-free interest" on the R.H.S. Similarly, Covered Call is not same as Writing Puts.

None of you, so far, for even once mentioned risk-free Bond. That's why I mentioned Buffett is Buffett! That's all he did throughout his life - Covered Calls/Protective Puts. He did not just go and buy naked Calls as a replacement of Protective Put simply because the direction of their pay-off diagram matches. You CANNOT mitigate the risk by doing so. PERIOD.

On one hand you have a Gambler and on the other you have a well hedged Trader or an Investor. Speculators fade away just like the wind.

Yeah! This ignorance helps keep my mind clean and be consistent on my strategy. Happy to be ignorant than to be cluttered with clouds of over-confidence to take irrational decisions.

You might call Options with whatever God-damn name that pleases you - whether it's synthetic, aesthetic butterfly or a dinosaur, at the EOD Greeks rule on the hindsight of Option fundamentals.

They are equivalent. If you buy the call (at a premium to the Protective Put), you get the interest on the excess cash equal to K.B(t,T)-K

The K.B(t,T) is to compensate you for your carrying costs which you will incur throughout the duration of the trade. Thus they are equivalent.

Buffent sold some puts a while back (but that was exploiting a specific situation in the long dated OTC market) but other than that he doesn't do covered calls nor protective puts as a core part of his investment strategy.

Stop being so arrogant. It doesn't suit you when you say stupid things.

ChimpTrader · Oct 3, 2018

newwurldmn said:
They are equivalent. If you buy the call (at a premium to the Protective Put), you get the interest on the excess cash equal to K.B(t,T)-K

The K.B(t,T) is to compensate you for your carrying costs which you will incur throughout the duration of the trade. Thus they are equivalent.

Buffent sold some puts a while back (but that was exploiting a specific situation in the long dated OTC market) but other than that he doesn't do covered calls nor protective puts as a core part of his investment strategy.

Stop being so arrogant. It doesn't suit you when you say stupid things.

.|..

destriero · Oct 3, 2018

@ChimpTrader is brain-dead. On ignore.

destriero · Oct 3, 2018

Ask yourself what happens to each, independently, when you raise rates or reduce the dividend. Right, Chimp! It’s magical! Rates only impact the natural call! lol.

EQUIVALENCE (as in no inequality). Increase rates on the right and see what occurs on the left. Please... continue. But first go back to freshman year for Alg1.

BWA hahahahahahaha. Sorry, but I cannot believe the guy came back for round 2. Still laughing, #tears

destriero · Oct 3, 2018

sle · Oct 3, 2018

"He is such a pessimist - when he bought a put/call combo, the legs added to 90 delta"

FibonacciNinja · Oct 4, 2018

This jungle is dangerous!

People teaching apples = apples then a monkey appears out of nowhere and argues that the left hand side is a banana?

Wait, no. Now that I think about, I'm convinced. If it looks like an apple, tastes like an apple, has the same payoff diagram as an apple, is mathematically an apple: then it's definitely not an apple.

destriero · Oct 4, 2018

FibonacciNinja said:
This jungle is dangerous!

People teaching apples = apples then a monkey appears out of nowhere and argues that the left hand side is a banana?

Wait, no. Now that I think about, I'm convinced. If it looks like an apple, tastes like an apple, has the same payoff diagram as an apple, is mathematically an apple: then it's definitely not an apple.

lol the dude cannot follow a simple equivalence after he provides the equation.