Research: new option type "Chameleon option" :-)

VolSkewTrader said:
@thecoder You remind me of someone I knew in college who had zero common sense, was socially retarded, and also incredibly pig-headed about his beliefs and views. Even though his 34 ACT and 1520 SAT scores got him accepted early admission, I still think he's one of the dumbest people I've ever met.
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@VolSkewTrader, by getting personal, you just prove that you are out of arguments, nothing more, man :)
I asked you publicly to prove your claim that my FairPut allegedly would create arbitrage, but you haven't answered that posting yet, instead coming with your above off-topic nonsense "argument".
You surely can think much and believe much, but whether it's true is of course another question... :)
 
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From the said private discussion with @VolSkewTrader regarding the alleged arbitrage of FairPut:

thecoder wrote:
@VolSkewTrader, I think I found an error in your argumentation regarding your claim that the said synthetic [+1 FairPut & +1 stock] would give a higher payoff than the vanilla Call:
IMO that cannot be the case b/c FairPut, as proved & admitted, is just the very mirror image of the Call.
So, then this said synthetic can only behave like a vanilla Call.

And: above you say "Stock puts do NOT have unlimited risk like stock calls. That is really at the heart of why the "FairPut" idea does not work in theory."
But with this statement you are contradicting yourself, IMO, because Call has an unlimited risk, and since FairPut is the mirror image of Call, then FairPut too has unlimited risk. This means: unlimited risk very well works also with equity options (ie. stocks and their options) for both directions, for up (Call) as well for down (FairPut).
Maybe you should forget the vanilla Put at all (as it distracts and is not really needed), and imagine just Call and FairPut plus the stock only instead.
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Man, I'm arguing with some self-proclaimed "experts" like @VolSkewTrader who have no real clue about the lognormal distribution!...
This can only mean the American brain-drain in action :)
Someone please inform Mr. Trump not to close the borders for foreign scientists :)
 
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thecoder said:
@VolSkewTrader, by getting personal, you just prove that you are out of arguments, nothing more, man :)
I asked you publicly to prove your claim that my FairPut allegedly would create arbitrage, but you haven't answered that posting yet, instead coming with your above off-topic nonsense "argument".
You surely can think much and believe much, but whether it's true is of course another question... :)
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Buy your stupid fucking put, sell SPX put, instant arbitrage. You're now broke. $300 down the drain.
 
destriero wrote:
Buy your stupid fucking put, sell SPX put, instant arbitrage. You're now broke. $300 down the drain.
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Not true, idiot! This already has been analyzed and tested, and cleared to be not the case!
You are just incapable to grasp it!
Read the definition of Arbitrage some postings above, ie.:
https://www.elitetrader.com/et/thre...e-chameleon-option.349956/page-5#post-5201939

Arbitrage has primarily to do with the payoff, not necessarily with the time value of the option.
As long as S, s, r, q stay the same then there is no payoff, so no arbitrage.
And if these params change, then there is of course a payoff, but this is then not an arbitrage (b/c the params have changed)!

And the premium of FairPUT is the same of PUT. So, then how can arbitrage at all be possible? Is not possible.

The mathematical relation is:
profit = credit + payoff
where credit and payoff can also be negative, so then of course also profit.
Ie. credit is negative for Long and positive for Short...
 
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VolSkewTrader said:
You completely misinterpreted and didn't get what I was telling you. FairPuts would be arbed to oblivion. FairPuts canNOT co-exist with regular calls and puts. FairPuts don't work in lognormal markets. And FairPuts fail miserably when the stock price goes to zero.
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how does it feel to spend so much time explaining basic concepts to him In private and then watch him publicly lambast you?
 
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