Well, if you are not holding them over the weekend then you understand the advantage to IWM over RUT....parity!!!!!! Big advantage!
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iron condor
- Thread starter osho67
- Start date
Well, if you are not holding them over the weekend then you understand the advantage to IWM over RUT....parity!!!!!! Big advantage!
Quote from Maverick74:
OK, let me try to even further add to this. When I say the options are trading at parity, that means there is no juice on them. It's all intrinsic value. So if they are in the money, there is nothing to be gained from holding them into the weekend. Now, one could make the argument if there was juice on them. Say you are short the Feb 55 calls and IWM is trading at 54.98 and the calls are offered at .10. Then that is juice. By not exercising you are hoping to capture that .10. But we are not talking about that. If the 55 calls are trading for .50 with IWM at 55.50, there is no advantage to holding the calls and getting exercised unless you WANT the directional risk. In other words, you are suddenly putting on a new trade that says, I WANT to be short. But that is irrelevant to this conversation.
maverick,
this little back and forth is a bit much. i think spindr0 captures my whole point. please read that post.
BUTTERFLY: Uses 3 strikes. All puts or all calls. Can also be viewed as 2 spreads.Quote from osho67:
If ICs have higher safety -that is really what I want. I have yet not understood difference between butterfly and iron butterfly. Please explain.
IRON BUTTERFLY: Four options at three strikes. (straddle in the middle). Wings on each side are OTM (strangle). Position can also be viewed as 2 verticals. Uses puts and/or calls.
Risk graph is the same for both.
Instead of getting caught up in terminology, for any strategy, look at the risk graph and see if it's acceptable. Terminology can confuse you. P&L won't.
Quote from spindr0:
I don't know if I can add much to Maverick's explanation.
With the ETF, something just OTM at expiry will expire. If ITM, it trades at parity. No risk premium left. Yes, if assigned, there's Monday AM directional risk but there's no settlement surprise.
With cash settled, you don't know where that will be and how far away it may be from where the actual index trades. A.M SUPPRISE !!
For the record I'm trying to compare apples to apples. Let's not assume assignment since one can't get assigned in the RUT. I'm assuming one is going to close out their position either Thursday at the close for RUT or Friday at the close for IWM. Anything after that is a whole new position and can't be compared. I'm trying to keep this simple for Dave.
And to sum up, the cost savings in the RUT on commissions is tiny compared to the additional risk. IWM over RUT is a no brainer.
Quote from daveyc:
i prefer the rut options. there is no better or worse. trade what you are comfortable with obviously. hopefully we are clear.
Right, I didn't mean better as in more profitable. I meant better as in less risk and less costly to close. The commissions saved is essentially a synthetic short put on disaster.
I just honestly don't believe you are understanding the parity argument. So I went through the explanation so hopefully "others" who read this will understand it and act accordingly.
Quote from Maverick74:
For the record I'm trying to compare apples to apples. Let's not assume assignment since once can't get assigned in the RUT. I'm assuming one is going to close out their position either Thursday at the close for RUT or Friday at the close for IWM. Anything after that is a whole new position and can't be compared. I'm trying to keep this simple for Dave.
And to sum up, the cost savings in the RUT on commissions is tiny compared to the additional risk. IWM over RUT is a no brainer.
maverick, save your condescending remarks for yourself. how old are you? you created a needless arguement out of this. why? ego? we know you cant get assigned on the rut options. AGAIN, reread spindr0 post, he captures and confirms my whole point!!
Quote from Maverick74:
Right, I didn't mean better as in more profitable. I meant better as in less risk and less costly to close. The commissions saved is essentially a synthetic short put on disaster.
I just honestly don't believe you are understanding the parity argument. So I went through the explanation so hopefully "others" who read this will understand it and act accordingly.
again, i understand the parity, please stop this insanity. we are not communicating in a manner that is useful at this point. we misunderstood each other, so lets leave it at that.
Quote from daveyc:
maverick, save your condescending remarks for yourself. how old are you? you created a needless arguement out of this. why? ego? we know you cant get assigned on the rut options. AGAIN, reread spindr0 post, he captures and confirms my whole point!!
No he didn't. By adding the extra assignment issue the whole argument changes. For the record, I'm not trying to be a dick and I'm not directing this at you. I worked at a prop firm for 7 years that traded options and very few guys understood this concept. I am going into detail here not out of ego, but to explain to others who are reading this thread and want to know why I would make the comment that IWM is much more preferable to RUT. Even you in your first post asked why I would possibly say that. It's perfectly obvious why someone would say that if they understand the parity argument. That's all I'm saying.
This was your first question:
Quote from daveyc:
why? how are you seeing the difference?