Married Calls

Quote from exQQQQseme:



Because this configuration has positive gamma, it is profitable if it goes either up or down. Then I adjust to make it delta neutral again. If it goes up, I short additional shares. If it goes down I buy more calls. I find shorting the additional shares easier than buying puts.
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Here is a suggestion but only if you promise not to start another one of these threads. LOL

Instead of buying calls to offset short deltas, simply cover a portion of the stock - 1 share for each 1 delta that you are short in excess of your desired exposure. The -edge paid in flipping the spot will be lower than if you were using the paper.

Do a search on gamma scalping, you will find a lot of info that pertains to you. In your case you are essentially scalping the gamma of the long call. When you are scalping, it behooves you to flip the leg with the least -edge.
 
Rally, I can't promise not to start another of these stupid threads. Just look over this thread and look at so much valuable information I got, which I would never have otherwise obtained.

I will take your advice and do a search on "Gamma Scalping". I really thought I understood this, but you guys have made it clear that I didn't know didly.

A follow up question to your last posting if I may.

What is meant by - edge and spot?

Thanks again,
Bob
 
Quote from exQQQQseme:

Smilingcynic, I'm with you all the way regarding the application of Reg. T, especially as it applies to the margin interest charge. I've been shorting stocks for a long time so I have a pretty good handle on how the interest charge works.

If I short a stock and the price of the stock goes down, my marginal cash balance increases. Often I have no margin interest charge. Matter of fact, only interest charge I had since last September was during that price spike in AAPL about 2 weeks ago. My interest charge over period of 6 or 7 days was $12.50. But, I understand what you are saying about the margin interest. And I'll be the first to admit that one should not screw around with shorting stocks at all unless they know all the rules, both margin or otherwise.

I'm really not here to argue. I just like to discuss the subject, especially with people who know what they're talking about. And for sure the three of you fit that description. I have no problem agreeing to a valid point.

Bob
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I am not talking about margin interest, I am talking about the difference in margin between buying/selling straddles and doing the synthetic.

Simply put, doing the straddle with options on both sides is cheaper than doing the synthetic under Reg T.

If the stock is around 40, selling a straddle with a strike price of 40 will require around $800 in margin (more if the stock is farther away from 40). With reg T, the stock part of the synthetic would require 50% down ($2000). The short option would required an additional $800 or so.

"Cheaper" doesn't mean that one should go out and put on the position with big size. Be aware that one straddle short means that there is the potential of being short 100 shares of a rocket or being long 100 shares of a rapidly falling stock.

If one cannot stand being long/short more than 1000 shares of stock, then don't put on more than 10 straddles.
 
Quote from exQQQQseme:

Richard, the reason I don't list all of the reasons is that there are so many people here who will blast away at anything I say. Just look at what has happened already in the first hour or so, with just one reason.

I would rather defend one theory at a time. So, sticking to this one, the cost of this trade is the theta decay. If I were to buy both a call and a put, both would decay. This way, only the call erodes.

Three things are going to happen:

The underlying will go up, down, or sideways.

Because this configuration has positive gamma, it is profitable if it goes either up or down. Then I adjust to make it delta neutral again. If it goes up, I short additional shares. If it goes down I buy more calls. I find shorting the additional shares easier than buying puts.

Someone, either you or the other gentleman, responded that this cannot be done in an IRA. That's right.

Bob
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Oh boy, not again!:eek:

Bob,

For the last time, synthetics means the positions are equivalent in every aspect - i.e. same max profit, same max loss, same Greeks. Theta is exactly the same, Gamma is exactly the same, vega is exactly the same and etc.

E.g. when you buy a stock you need 2 ATM calls to hedge the deltas. 2 ATM calls have exactly the same total greeks as buying an ATM call and an ATM put! So your time decay is exactly the same!

Let's move on to the next advantage!
 
Quote from exQQQQseme:

Rally, I can't promise not to start another of these stupid threads. Just look over this thread and look at so much valuable information I got, which I would never have otherwise obtained.

I will take your advice and do a search on "Gamma Scalping". I really thought I understood this, but you guys have made it clear that I didn't know didly.

A follow up question to your last posting if I may.

What is meant by - edge and spot?

Thanks again,
Bob
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Spot means stock. - edge means negative edge (i.e. advantage).

What rally meant was that you should trade the stock to adjust deltas rather than the option because stocks have narrower bid/ask spreads and thus you don't overpay for the adjustment, so to speak. In other words, with options you would most likely sell for less (or buy for more) than fair value, thus giving up the edge.
 
MTE, thank you for explaining "spot" and "edge". It was clear and very helpful.

jj90, when George decided that he was no longer going to participate on the Optionetics Board, the learning curve there went way way down. He used to provide so many worthwhile pointers regarding Butterflies. But, what the hell...that's another story.



Bob
 
SmilingSynic, thanks for clarifying that you were not talking about the margin interest charge, but the margin requirement.

Let me throw out for your response, how I have been handling the margin requirement under Reg. T for my stock shorting up to now. I open my short stock positions in an account where for years there has been a very nice equity build up using mutual funds. Since all of the funds qualify as "marginable assets", I don't have a margin requirement concern at all. I periodically check my "Balances" tab in my brokerage account and it clearly shows me how much marginal ability I have left.

This having been said, because so many have validly pointed out to me that the biggest disadvantage of the Married Call vs the Straddle is the Margin issue, does this not flip the advantage back to the Married Call side of the ledger? My thinking is that it does. But, if I'm wrong on this, no doubt it will be quickly pointed out here.

Again, thanks everyone.

Bob
 
Lets summarize this thread to show the pattern of all past, current and future (but we can always hope) threads by QQQQ.

He opens by describing a strategy that has came up in his mind, not actually traded or tested or researched. That wouldn't be a problem in itself but the tone suggests that we have here someone using this method day-in-day out.

He says he, for the moment will only give one, of the many advantages of the strategy over it's synthetic equivalence.

He states no problem nor asks a question. Just the lame position and its one big 'advantage'.

That one advantage is such obvious nonsense that even my mother knows it's wrong (sorry Mom). This is pointed out, blasted from the table and explained to the core several times here (and before).

What part of the words synthetic EQUIVALENCE do you not understand!!!???

Now, instead of addressing this obvious misconception, thanking for the new insights or even debating its validity, you totally ignore it. This is not only irritating but insulting to the writers. MTE and others take effort to write you a reply and invest more time and energy than you in all of your evasive and vague ponderings.

You are then hardly able to follow a different DISadvantage of you method, namely the high margin requirement.

I'm still waiting for all the other big advantages of your strategy.

One silver lining to all this sad and depressing ignorance, you acknowlegde that you might need 1 book. Sadly, you again ask for the obvious because the answer to which book has been given many times before. You shoud've start reading when you were advised the first time and you would have saved us all a lot of time.

You make every dumb thinking step a n00b makes, no problem with that, I made many myself. But your attitude is wrong and you behave as if you know everything.
Let me tell you something: I do this part-time for 10 years now and I estimate I know about 50% there is to know about options. I can describe and name about 20% of the other half.
In your case I estimate the numbers at about 10% and 5%.

Now go study, go seek help for the attitude-problem (maybe too late) and next time start by asking a question. Please?

Ursa..
 
Ursa,

Don't mean to jump on the band wagon but last night, I went back and read the entire chain and ended up wondering about the disconnect. Someone says A and then B gets replied to (eg. "There's a a higher margin requirement" elicits a response of "I'm not charged margin interest because I have funds in the account" etc.). It's like the Pillsbury Dough Boy ... squeeze here, out pops something there.

But the real silver lining is that you guys take the time to post in depth explanations that help newbies like me learn more. So run around or not, some appreciate the effort.

So what does it all mean? It must be time to abandon this topic and begin a new one!!! :D
 
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