Reverse Collars
- Thread starter Eliot Hosewater
- Start date
huh
Not semantics but definitions.
The real trade is the trade you place, in this case a reverse collar.
The synthetic is the trade that is equivalent to the real trade, in this case the vertical.
Otoh, if the real trade is a vertical,eg bear put spread, then the synthetic equivalent would be the reverse collar.
daddy's boy
Easy.
You're short aapl stock (trading at 79 say), long the 85 call and short the 75 put - i.e. both are otm. This is the same as being long the 75/85 put vertical debit spread.
I think this is what you were asking?
daddy's boy
Daddy's Boy, I thank you very very much for your answer immediately above. For sure, I am going to learn quite a bit from you guys. I need to study and analyze your answer, which I will do for sure.
One initial reaction I have though is that with AAPL being at 79, I'm not sure I would long the $85P and short the $75P because I don't think I would be collecting enough premium on the $75P. But, as I say, this is only an initial reaction.
Nevertheless, thanks again and I will study what you have so graciously provided.
Any other vertical synthetic examples would also be greatly appreciated.
When I started posting over here I expressed the feeling that I was going to enjoy participating here much more than at Optionetics. Here, everyone is loose as a goose and nobody is trying to protect a vested position or worry about whether they are going to irritate their boss or run afoul of Company policy.
4Q
One initial reaction I have though is that with AAPL being at 79, I'm not sure I would long the $85P and short the $75P because I don't think I would be collecting enough premium on the $75P. But, as I say, this is only an initial reaction.
Nevertheless, thanks again and I will study what you have so graciously provided.
Any other vertical synthetic examples would also be greatly appreciated.
When I started posting over here I expressed the feeling that I was going to enjoy participating here much more than at Optionetics. Here, everyone is loose as a goose and nobody is trying to protect a vested position or worry about whether they are going to irritate their boss or run afoul of Company policy.
4Q
8 Ball. What difference does it make whether one is the Natural and the other is the synthetic, unless they give frequent flyer miles for one or the other.
Just kidding.
4Q
Just kidding.
4Q
I'm no expert on synthetics, lol.
I only picked those strikes because I wanted to give an easy to follow example of otm strikes for those putting on a reverse collar. You might have just done the married call - short aapl and long the otm 85 call - which would be synthetically a long 85 put (i.e. itm put aka higher delta which, of course, also has higher risk). Of course you could buy the itm 75 call and thus get the synthetic long 75 otm put (lower risk but here you'd need a bigger move to make your $$$ since the delta is lower).
Synthetics are all based on just this one formula and its derivatives:
stock + put = call
thus we get put = call - stock or put - call = - stock
or stock = call - put
Sorry if I'm repeating stuff you already know.
daddy's boy
"The spread and liquidity might be a valid point, but the delta is not. The stock has a higher delta, but the overall portfolio has the same delta as its equivalent vertical."
Yes, since they're synthetic positions, the deltas of the 2 positions will be the same.
What I was suggesting (tho not very clearly) was that if the underlying moves in your direction and you trade intraday reversals, the stock is a better choice than the ONE option of the synthetic that moved in your favor. Snag a quick scalp and then restore the collar.
Yes, since they're synthetic positions, the deltas of the 2 positions will be the same.
What I was suggesting (tho not very clearly) was that if the underlying moves in your direction and you trade intraday reversals, the stock is a better choice than the ONE option of the synthetic that moved in your favor. Snag a quick scalp and then restore the collar.
One thing to consider is that some people are just more comfortable shorting stocks and therefore prefer entering short position based on thier own criteria and then slap on a collar for limited risk in exchange for limited reward.
Since the fact that there are synthetic equivalents has been accepted by all here, even the thread starter, there is no need to beat the horse. After all if they are synthetic equivalents then why argue one over the other lol.
What I do find is that synthetic equivalents are not synthetic when it comes to real application. As I said, someone who is very comfortable picking short stock entries would prefer the short collar over trying to slap on a bear put spread. Same with those who prefer naked puts over covered calls because they do not want to own the stock or prefer the generous margins when shorting puts.
Spin points out above that the short collar may allow the person to scalp easier off of the short because they are used to scalping off of a short stock versus trying to do so on a vertical.
I think QQQQs prefers to short stocks and therefore favors the short collar. It makes sense because it fits his trading style and that is what matter most.
So lets see how he handles his positions and makes adjustments. Since people argue that the vertical is equivalent, why argue he should do one over the other lol. he should trade the way that best matches his approach.
Since the fact that there are synthetic equivalents has been accepted by all here, even the thread starter, there is no need to beat the horse. After all if they are synthetic equivalents then why argue one over the other lol.
What I do find is that synthetic equivalents are not synthetic when it comes to real application. As I said, someone who is very comfortable picking short stock entries would prefer the short collar over trying to slap on a bear put spread. Same with those who prefer naked puts over covered calls because they do not want to own the stock or prefer the generous margins when shorting puts.
Spin points out above that the short collar may allow the person to scalp easier off of the short because they are used to scalping off of a short stock versus trying to do so on a vertical.
I think QQQQs prefers to short stocks and therefore favors the short collar. It makes sense because it fits his trading style and that is what matter most.
So lets see how he handles his positions and makes adjustments. Since people argue that the vertical is equivalent, why argue he should do one over the other lol. he should trade the way that best matches his approach.
That's the beauty of synthetics, whatever you do to a natural you can do to a synthetic.
For example, say you have a reverse collar on AAPL with stock at 85, long 90 call and short 80 put. As an intraday scalp you decide to buy the stock back. You will end up with a long 90 call and a short 80 put - a position known as a risk reversal (or, in layman's terms, a long synthetic stock with a kink in the middle). When you re-short the stock you restore the reverse collar.
Now, suppose, instead of the reverse collar you have a long put vertical (a synthetic equivalent=long 90 put, short 80 put). You can do exactly the same trade, i.e. buy the stock (just in this case you won't be covering your short, you'll be intiating a new long position). The position you end up with is exactly the same - a risk reversal (long 90 put+long stock form a synthetic 90 call, which together with the short 80 put give you a risk reversal). When you sell the stock you restore the long put vertical.
As I said, any adjustment that works for a natural works for a synthetic. That's why the term "synthetic".