Merits of synthetic short call with long call

[destriero]

You can't sell vol and watch the SPX drop 75 handles in three days and expect to make money. You will still need to be right on direction, or vol, or both. Not knowing the basics will cause you to lose more, or make less. The idea of isolating the PNL of the share position and the call resulted in you not understanding the risks. Being a dilettante with $13K isn't going to get you anywhere. If you win a few you'll invariably increase size and blow out. Otherwise you'll die from a thousand cuts. I would open an account with a broker than offers stress-testing (what-if analysis) like thinkorswim.

You'll be subject to PDT with only $13K, so you will need to either trade into the close or be certain that you will not need to close a position on the day you open it.

You're competing in an market where everyone (where flows originate) knows more, has more experience than you do, and have magnitudes more capital.

 

[badlucktrades]

well ive had the same 13k

You can't sell vol and watch the SPX drop 75 handles in three days and expect to make money. You will still need to be right on direction, or vol, or both. Not knowing the basics will cause you to lose more, or make less. The idea of isolating the PNL of the share position and the call resulted in you not understanding the risks. Being a dilettante with $13K isn't going to get you anywhere. If you win a few you'll invariably increase size and blow out. Otherwise you'll die from a thousand cuts. I would open an account with a broker than offers stress-testing (what-if analysis) like thinkorswim.

You'll be subject to PDT with only $13K, so you will need to either trade into the close or be certain that you will not need to close a position on the day you open it.

You're competing in an market where everyone (where flows originate) knows more, has more experience than you do, and have magnitudes more capital.

well, ive had the same amount + maybe 10% from when i started , 8 years ago,and have done at least 100+ trades lol...of options. more with stock. i tend to make many profitable trades and then arrogance leads me to blow out those gains. so my strategy now is more reserved (save for this last trade i did).

right now, im just building up a dividend portfolio of sound stocks, where I use what i expect for volatility in the year to break down the price into entry points. I use a % of my portfolio and divide it equally amongst these entries.

with options ive been doing bullput or bear call spreads weekly based off the weekly vol for spy. i.e if it moves 1.5-2std i take a credit position 0.75-1std, or 0.5std in direction of where it just moved, expecting it not to advance or drop further than those points.. i calculate my entries for this as well, using the theta,delta and have limit orders based on my estimated prices. my spreads are also only 50pt wide. normally my trades dont go live

so far its been good so far.

 

[badlucktrades]

i also have secondary spreads that will go live in the event that it does an extended advance. but nothing more than that. itll double my loss, but the moves like that are stastically unlikely.

 

[galvinlee888]

well ive had the same 13k


well, ive had the same amount + maybe 10% from when i started , 8 years ago,and have done at least 100+ trades lol...of options. more with stock. i tend to make many profitable trades and then arrogance leads me to blow out those gains. so my strategy now is more reserved (save for this last trade i did).

right now, im just building up a dividend portfolio of sound stocks, where I use what i expect for volatility in the year to break down the price into entry points. I use a % of my portfolio and divide it equally amongst these entries.

with options ive been doing bullput or bear call spreads weekly based off the weekly vol for spy. i.e if it moves 1.5-2std i take a credit position 0.75-1std, or 0.5std in direction of where it just moved, expecting it not to advance or drop further than those points.. i calculate my entries for this as well, using the theta,delta and have limit orders based on my estimated prices. my spreads are also only 50pt wide. normally my trades dont go live

so far its been good so far.

God blessed..

 

[donnap]

OP perceives some pricing advantage to the trade.

SPY goes ex-div. on Sept. 18.

The div. payout for the short shares should be over 1.00.

 

[badlucktrades]

Hey so would the risk/reward chart look like this?

 

[galvinlee888]

Hey so would the risk/reward chart look like this?

Do you have a proper platform such as thinkorswim?

 

[donnap]

Hey so would the risk/reward chart look like this?

Yeah something like that. It's a reverse diagonal so the P/L is somewhat straddle-like, though more limited in loss and gain. You'd want a decent move away from 198, the sooner the better.

The area around 198 is the loss zone at the first expiry. You can look at it as long the 198C, short 197C or short the 198P and long the 197P at the Sep 18 and Sep 25 expiries, respectively.

I assume that the P/L chart uses a static vol. Rising vol will hurt the trade and falling vol should help.

It's not a terrible trade, but it is both cost and margin inefficient. If you could afford to trade ES options you'd do a lot better on costs. I would ratio the long option side and move it further out. A little like your initial trade except a 1:2 or a 2:3 ratio instead of a 1:3. And I may or may not use all options vs. UL.

The div. mucks things up pretty well and you should deduct about $105? from the trade as you pay the div. The div. will also impact the value of the long call if it should go very far ITM - even though it expires a week after ex-div. Not likely, but if the long call were to go to parity, then you should consider exercising it the day before ex-div.

I wouldn't take the trade, but at 193 right now, it's probably looking OK.

 

[badlucktrades]

Yeah something like that. It's a reverse diagonal so the P/L is somewhat straddle-like, though more limited in loss and gain. You'd want a decent move away from 198, the sooner the better.

The area around 198 is the loss zone at the first expiry. You can look at it as long the 198C, short 197C or short the 198P and long the 197P at the Sep 18 and Sep 25 expiries, respectively.

I assume that the P/L chart uses a static vol. Rising vol will hurt the trade and falling vol should help.

It's not a bad way to trade declining vol, but I would ratio the long option side and move it further out. A little like your initial trade except a 1:2 or a 2:3 ratio instead of a 1:3. And I may or may not use all options vs. UL.

The div. mucks things up pretty well and you should deduct about $105? from the trade as you pay the div. The div. will also impact the value of the long call if it should go very far ITM - even though it expires a week after ex-div. Not likely, but if the long call were to go to parity, then you should consider exercising it the day before ex-div.

I wouldn't take the trade, but at 193 right now, it's probably looking OK.

yeah i already closed it for 434 profit. but that was offset by the -400 loss in calls and the closing of the 197.50 put to a 197 put. all in all, wouldve been profitable, if i hadnt bought the calls.

I guess the reason to short shares instead of longing a put is to not deal with the theta decay.

 

[destriero]

The ability to stress test is important, but few people model a change in the vol (strips, across the strikes). Most notably on the downside. So they look great out to 1900 SPX, but don't model the rise in vol should we drop 50-60 handles to get there.

Price the individuals on the at the money strikes. You will know there is a $1.00 div if SPY is trading 198 last and the 198 call/put straddle is priced at 4.50x5.50 (10.00 straddle, 1.00 div). Again, solving for the div(or carry) via parity.