Newbie Question: Married Puts aka Covered Puts

Quote from FullyArticulate:

Quote from Investorsources:
To be honest with you, im not up on my greeks as much as you and some on here. I try not to get too complicated with them because all it does is confuse the issue.

Ouch, and sadly a greek could have saved your argument: rho.

1) you buy the Jan 08 100 call at $6.60. The married put had a buy price of 74.90 and the 100 put cost 27.3. This implies $2.30 in premium.
So already a big difference.

Sure, one difference is that you're in the hole $7490 for a year and a quarter. At 5% interest, you've lost $468 over 1.25 years.

Take your $2.30 in premium, add $4.68, and guess what, the total comes to $6.98.

In short, you're paying .38 more for your married put than you are for a call.
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If you bothered to read my post, youd know that in my preferred scenario I dont just sit around and do nothing. I continue to generate a return by writing covered calls in subsequent months. But you didnt bother reading my posts and its quite clear, but I dont blame you, they were long.

In addition, what happens in the simple example of executing a straddle whereby I buy both at the money calls and at the money puts. The difference in price is then because of what exactly? Not the interest rate. AS those of us who are in the know, the Black Scholes Model takes the interest rate into account when calculatin BOTH CALL AND PUT PREMIUMS.

You think that by condascending to me that you somehow will ingratiate yourself with others doing the same. And that you will gain a rapport perhaps. Well, im here to tell you I dont care.

In fact, I care just enough to tell you to go fck yourself.

Yeah, im being crude. Deal with it. You keep to your greeks and maybe one day you might learn something from someone who trades nothing but options and option hedging strategies.

You might know greeks and theories. I know practice. Thats how I can write out such long discertations and give you exactly what will happen in every scenario of the stock and option......because ive lived it jackass. Ive done it. Get that?

So when you really have a chance to sit down and get a pencil and paper or excel for that matter and do out the model, it isnt a hard one, and once you've figured it all out, then come back and apologize and we can talk more.

Either way, I dont give a damn, so take a hike pal.
 
Quote from Investorsources:

In addition, what happens in the simple example of executing a straddle whereby I buy both at the money calls and at the money puts. The difference in price is then because of what exactly? Not the interest rate. AS those of us who are in the know, the Black Scholes Model takes the interest rate into account when calculatin BOTH CALL AND PUT PREMIUMS.

...go fck yourself...
...because ive lived it jackass...
...take a hike pal...
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You're pretty aggressive for someone whose plainly wrong. You made the simple statement that there is no put/call price parity. You said a $6.60 call was a worse deal to buy then buying the stock and a put. I'm merely showing you where your math went wrong.

And yes, B-S takes into account interest rates for both a put and a call, but in opposite directions.
http://en.wikipedia.org/wiki/Black-Scholes

Maybe you need to live options some more so we know what the hell you're talking about.
 
Quote from mysticman:

You have answered many questions in all your typing, but some still remain. It seems that several here have now shown you that when you figure in the cost of carry, the premium on the calls is equal to the cost of the puts plus cost of carry.

In #2 above you ask how to generate back the call premium, and instead of doing what this thread is all about (selling near-term calls on your married put position), you go into a right-angle turn and talk about an entirely different position. What was wrong with selling the November 85 call that I suggested in my last post? What makes you avoid that and do something entirely different?

Let's say you are long the natural April07100 call. Then you sell the 85's against that creating a short call spread. Have you done a risk graph on that? Have you worked out the scenarios for that? If you had done either of these things you would see that the results are the same as selling the 85 calls against your married put position. In all your typing, why don't you give an example of how you think it would be different?
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Not that I cant or wont, but Im just dont here bro. Done with this conversation and the tripe of some posters on here that want to assume they know something I dont.

If someone has some strategy that they think is great, Im always willing to listen.

But, right now, im done answering questions and getting negative feedback.

I do what I do and I do it well and im happy wiht the results. Actually, whats funny is, i no longer do this strategy anymore as I have a different one that is even better, but requires one to be a better trader as you are in and out a lot more.

But this particular one that we are discussing doesnt require constant trading, but it was and still is profitable and well worth the time to learn.

If you want to talk to me, for the privileged few, we can talk by phone. Send me a PM and ill give you my number. Then we shall see who is serious and who the jokers are around here.

Im done getting into why and dealing with too many yahoo's on here who think they know it all. Yes, for those of you who need it to feel good, you guys know more than I do. Feel happy with yourselves and good luck trading to you.
 
Quote from Investorsources:
But, right now, im done answering questions and getting negative feedback.
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Anyone who uses so many words to explain something he clearly doesn't understand is a complete jerk in my book. You just don't know what you're talking about and use walls of words to hide your ignorance.

In fact, you remind me of that other guy, Grob or something, who polluted the other forums with his gibberish.

Ursa..
 
Quote from MajorUrsa:

Anyone who uses so many words to explain something he clearly doesn't understand is a complete jerk in my book. You just don't know what you're talking about and use walls of words to hide your ignorance.

In fact, you remind me of that other guy, Grob or something, who polluted the other forums with his gibberish.

Ursa..
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Wow, its amazing I tell ya. Another freak who'd rather critique than learn.

Again buddy, give me your number or ill give you mine and we can see who is full of crap and who isnt.

Its the ultimate equalizer. If your the man you say you are, youll talk to me in person, not face to face, but the next best thing.

And we can see what you know or dont know.
 
Quote from Investorsources:

Wow, its amazing I tell ya. Another freak who'd rather critique than learn.
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Its the ultimate equalizer. If your the man you say you are, youll talk to me in person, not face to face, but the next best thing.
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You've got to be one of the most defensive people I've seen post on ET. Several people calmly point out a mistake in your reasoning, and rather than admit your mistake and readjust your scenario to take it into account, you call them names and imply they're not "real men".

What would a phone call accomplish? You've said the "privileged few" can call you and discuss your strategy and you'll teach them. But you're unwilling to learn at the same time.

Listen, and you may be heard.
 
Quote from FullyArticulate:


Sure, one difference is that you're in the hole $7490 for a year and a quarter. At 5% interest, you've lost $468 over 1.25 years.

Take your $2.30 in premium, add $4.68, and guess what, the total comes to $6.98.

In short, you're paying .38 more for your married put than you are for a call. [/B]
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That's if you don't put your position to work. If you can make 15% by selling covered calls then you are ahead. Also, in that case I don't think you can make the argument that you should subtract the interest you missed. If you CAN give me a good reason, then I'll run it by the IRS on next year's tax return.
 
Investorsources, while you have pushed your point rather nicely, do realize there is no shame in retreat. I will refrain from saying anything about trading in this post, but see that if 6 people are saying something differently from what you, and that you are not the only one with experience, it is time to back down. If I go any further this post will degrade into flaming so please do yourself and us a favor and back away.
 
Quote from Eliot Hosewater:

That's if you don't put your position to work. If you can make 15% by selling covered calls then you are ahead. Also, in that case I don't think you can make the argument that you should subtract the interest you missed. If you CAN give me a good reason, then I'll run it by the IRS on next year's tax return.
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Eliot, you still have to factor in carry however. If you made 15% while carry is 3% then you really made 12%. Look at it the other way, if carry was 5% on a position, and the position yielded 4%, why would you trade? Any factor that retards your ability to make cash needs to be overcomed 1st. If you owned bonds (correct me on this) you don't get the whole payout, tax is deducted from the interest. Same idea.
 
Quote from Eliot Hosewater:

Also, in that case I don't think you can make the argument that you should subtract the interest you missed. If you CAN give me a good reason, then I'll run it by the IRS on next year's tax return.
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I think you're mixing a couple of issues. The IRS doesn't tax opportunity costs. :-) If it did, people could deduct every bad business decision they made.

Think of it this way. To buy the married put as Investorsources described, you will have to pay $7490 + 2730. That money is gone, you own the stock and option instead. Alternatively, you can buy the call for $660.

Say you start the year with $10,220 and take either path.

In the first case, you will earn absolutely no interest in 1.25 years because you have spent the full amount on stock and options.

In the second case, you will earn $597.5 in interest on the money you didn't spend creating the married put. You only spent $660, not $10,220 constructing the identical position.

Investersources describes "earning money" by adjusting his position. The truth is that there is no difference between a call and a married put. You can sell calls against your call (turning it into a vertical), or you can sell calls against your married put (turning it into a vertical). Either way, it's the same position.

Lots of people argue that there's no way they would sell naked puts, but they would happily sell covered calls. The risk is exactly the same. For tax purposes, you may be able to keep the underlying as a long term capital gain. Otherwise, there is absolutely no difference in risk/reward.

Put/call parity is a basic fact of option pricing. You cannot have a synthetic call cheaper than a real call, or else you've found a risk free arbitrage. In other words, if Investersources were correct and the married put is cheaper than the call, he should just buy hundreds of conversions or reversals because it's free money.

I'm not looking to embarass anyone, and people have a very hard time grasping synthetics, so there's nothing to be ashamed of here. Spend a little time with Wikipedia:
http://en.wikipedia.org/wiki/Put-call_parity

You'll see that the cost of a married put + the cost of carry (i.e the $547 in interest you didn't make) is the same as the cost of a call.
 
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