Good, just move the posts to collect your money.
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My Option Dilema...!
- Thread starter TradStSOX
- Start date
Good, just move the posts to collect your money.
Quote from MTE:
Buying an ITM call and put at the same time is equivalent to buying an OTM call and put. E.g. 90 call+100 put=100 call+90 put
Not correct if you exclude two instants: (1) when position is opened, and (2) at expiration. Also not correct even at time of opening position for certain strikes if cost of carry is not zero, and exercise is american .
Quote from MAESTRO:
MTE is absolutely correct. ITM options have no advantage except you pay higher margin. Also, the Bid/Ask spreads are typically higher than OTM options.
As in my above post, MTE is NOT always correct. Maybe correct only at two points in time, and may not be correct even at the beginning for certain strikes when carry is non zero and exercise is american.
Quote from TradStSOX:
Let me see if I understand this correctly.
DIM has little to no premium, right?
So if price at 100, then the 90 call and the 110 put should have no premium(little).
If the price moves down to 85, then the 110 put has collected 15 points for me but what happens to the 90 call?
It has lost the 10 points in the money it had right? and now has converted to a OTM 90 call at 5 points below it's strike price which should have some handsome extrinsic value or not?
Hence had I gone short and long the future at 100 at the same time my gains would have been 0 whereas I've gained 15 points from the put and lost 10 points to the call for a net gain of 10 and the 90 call has also still have some value.
Where am I wrong / confused on this strat.?
As we exchanged in the PM messages, you know that there are many ways to play your hand where you can just come on top. Some you already now, and others will come. The people who answered your post did their best, and I think they should be thanked. They just saw your question from another perspective, but their contribution is valuable.
But there are some people at ET who have mostly nuts in their heads (they did not respond yet to your post). They hang in here mainly to eat free lunchs (you know that I am talking to you. Not you the general reader, but you a certain reader. I know that you are reading this now). Some of these people do not give anything in valuable in return. Well in order for them to know how to play your hand in at least 5 profitable ways, they will have to PM me. For the rest of the readers, if you want to know how to play the hand of the OP, feel free to PM me, I just do not want some people to have free lunches.
Do not get rid of that hand. It is a perfect hand. Particularly do not exchange it for the strangle (OTM put and call).
Quote from TradStSOX:
I wonder if I could get some help from the experts on the following option strategy?
My model sometimes issues long and short signals at almost the same time. Like for example there is a long signal with 5 ES points above the present price and a short one say 4 points below the existing price. The model cannot determine which will be hit first.
My alternatives are to go long and short by pairing at the same time, which can only be justified if one wanted to scalp mid range, since the same otherwise could be achieved by waiting for one of the signals to be hit first and then take the other one for the whole range of the 2 signals added.It's like saying OK I can go short or long and probably be profitable anyways but will adjust the timing and wait for 1 signal to get hit first and then add to the profit target too. Well, does make some sense...
The other approach I'm thinking is to use opposite direction naked options in and while waiting to for one to go ATM to take advantage of the time and IV decay of the other...
First, am I making sense, do the advanced experts also confirm this approach and if so which liquid options would give the best liquidity and also be available after hours.
Or
What are your suggestions please?
thanks
TradStSOX:
Your strategy will make money only outside the range of 90-110. The stock should be either below 90 or above 110 at expiration to be profitable.
What if the stock stays at 100? The call will have intrinsic value of 10, but PUT would have lost all its value making the trade (10+0)-(10+10)=-10.
If you do the similar analysis with reverse positions as suggested, 90 Put and 110 Call, you will pay less in the premium, but see what happens when stock is at 85, the PUT will be worth 5 points, and the call will be worthless, making you a profit of 5 as in the case of DITM 110 PUT/90 CALL example. Again, if the stock remains in the zone, the options expire worthless. In that case all you lose is just the premium which would be less than 10 points!
You can make this a calendar or diagonal spread from your original DITM postion to cover some of the risk, but again the same can be done by the OTM postions too!
Quote from thinkplus:
TradStSOX:
Your strategy will make money only outside the range of 90-110. The stock should be either below 90 or above 110 at expiration to be profitable.
What if the stock stays at 100? The call will have intrinsic value of 10, but PUT would have lost all its value making the trade (10+0)-(10+10)=-10.
If you do the similar analysis with reverse positions as suggested, 90 Put and 110 Call, you will pay less in the premium, but see what happens when stock is at 85, the PUT will be worth 5 points, and the call will be worthless, making you a profit of 5 as in the case of DITM 110 PUT/90 CALL example. Again, if the stock remains in the zone, the options expire worthless. In that case all you lose is just the premium which would be less than 10 points!
You can make this a calendar or diagonal spread from your original DITM postion to cover some of the risk, but again the same can be done by the OTM postions too!
Long DITM put and DITM call can not lose capital if cost is difference between strikes.
pl. disregard my previous post.
I wanted to say this:
TradStSOX:
Your strategy will make money only outside the range of 90-110. The stock should be either below 90 or above 110 at expiration to be profitable, between the range it will breakeven.
If we do the similar analysis with reverse positions as suggested, 90 Put and 110 Call, you will pay less in the premium, with stock at 85, the PUT will be worth 5 points, and the call will be worthless, making a profit of 5 as in the case of DITM 110 PUT/90 CALL example.
However, if the stock remains between 90-110, the options expire worthless. In that case we lose the premium.
So, I am not sure how the reverse position is the same as previous one where you canât lose.
I wanted to say this:
TradStSOX:
Your strategy will make money only outside the range of 90-110. The stock should be either below 90 or above 110 at expiration to be profitable, between the range it will breakeven.
If we do the similar analysis with reverse positions as suggested, 90 Put and 110 Call, you will pay less in the premium, with stock at 85, the PUT will be worth 5 points, and the call will be worthless, making a profit of 5 as in the case of DITM 110 PUT/90 CALL example.
However, if the stock remains between 90-110, the options expire worthless. In that case we lose the premium.
So, I am not sure how the reverse position is the same as previous one where you canât lose.
Riskfree: I was late to edit, and you beat me o ntaht one!
You are right, the DITM can not lose, and that's what I wanted to update. Thanks for the correction.
I was looking at a scenario to write a short term OTM call/put on the same positons, and we may lose in that case if one of the short term strikes are hit at expiration.
You are right, the DITM can not lose, and that's what I wanted to update. Thanks for the correction.
I was looking at a scenario to write a short term OTM call/put on the same positons, and we may lose in that case if one of the short term strikes are hit at expiration.