is it hard?

M

met1989

hey

is it hard to sell in the money but very deep in the money like 10% how to profitfrom it wait for expiry or are there other ways?
 
Price the same strike put as the short call. The difference in the price of the put and the extrinsic value of the call will be the same (absent rates & divs) Short 100 call = short shares & short 100 put. So put value = call time value.
 
destriero said:
Price the same strike put as the short call. The difference in the price of the put and the extrinsic value of the call will be the same (absent rates & divs) Short 100 call = short shares & short 100 put. So put value = call time value.
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Wow, and no sarcasm. Good for you destriero . It is not clear to me he wanted to do a buy-write vs just be short from his question.
 
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Robert Morse said:
Wow, and no sarcasm. Good for you destriero . It is not clear to me he wanted to do a buy-write vs just be short from his question.
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Wanted to let him know how to price/conceptualize the vol-component in the DITM option, short-call in this case, as expressed as the synthetic.

Below is a Nov exp 10% ITM call and same-strike put on GOOGL. On the far-right you can see that the deltas (ignore sign) approximate 100. The (85.87) and 14.14 figures.

2018-09-24_1243.png


The embedded "time value" in the call is equivalent to the premium in the *same-strike* put. Summing their deltas = 100. It's only 1bp off. 85.87 + 14.14 = 100.01 deltas. Obv deltas are delimited to 100. Your delta-marks can show you edge w.r.t. the arbitrage if you're holding locks.

The premium equivalence (8.90) is governed by the conversion arbitrage: buy 100 shares; sell 1060C; buy 1060P. You're long 100 shares naturally and short 100 shares via the 1160 synthetic short. You're long 100 GOOGL shares and short 100 shares in the option synthetic (short 1060C/long 1060P).

Further, you can do the same without the share-component in the arbitrage in buying say the 1150 synthetic and shorting the 1160 synthetic. You're then "long" the 50-60 box. It's a profitable arbitrage f you buy it at a discount to $10.00 (strike-differential), absent rates.

Put another way. What is the difference between a call and a put? Shares (conversion arbitrage).

The difference between a call spread and a put spread? The box.
 
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The only reason I have done that is when I wanted to be long a stock, but the underlying paid no dividend and I wanted to reduce my margin compared to simply being long the equivalent amount of stock.
 
destriero said:
The embedded "time value" in the call is equivalent to the premium in the *same-strike* put.
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[nitpicking] In your GOOGL example, a Call actually has more extrinsic values than its corresponding Put of the same strike and maturity. See 11.28 vs 9.15 in the attached screenshot.

Similar for indices like SPY, where calls are trading with more extrinsic values than puts right now.

Conversely, puts can be trading with more extrinsic values than calls. See another thread on a hard-to-borrow stock TLRY for example. https://www.elitetrader.com/et/threads/324953/
 

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I don't remember posting here. I remember a lot of crap (posted while drunk) but not this.

Somebody revived this post for their unscrupulous purposes. Thank you for reminding me you exist!
 
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