They are equivalent. More important is the fact that ISE f*cked you on the mkt order. I cannot imagine someone didn't bid something marketable.
Here you are. First image is the guts, second is the natural (OTM):
Short strangle legs were assigned even though price of underlying stayed within the price bounds?
- Thread starter stochastix
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They are equivalent. More important is the fact that ISE f*cked you on the mkt order. I cannot imagine someone didn't bid something marketable.
Here you are. First image is the guts, second is the natural (OTM):
I see now. Yes, im an idiot. well, now I know. thanks
Is there no Reg NMS like best-execution requirements for options markets?
There is no mkt depth on COB so it's essentially treated as bespoke. You could absolutely have gotten the trade busted with the fills as you've reported. Obv you placed a mkt order. Don't do that. Place a marketable limit order even if it's for a large edge loss.
You gotta understand synthetics. If you did you would have known about the strangle (in/outside) equivalence and a market order in the outside (natural) would have resulted in an acceptable fill. In reality it should make no difference, and TBH I still don't understand how you got raped so badly.
The only rationale for trading the guts is to convert an existing outside strangle (profitable) to a box-arb if the contract are expiring in the next calendar year to defer the cap-gains. The IRS could never prove intent to "short against the box" by doing so. I am not suggesting such a practice.
I dunno how I got raped? It was only a few hundred dollars loss. I learned from it, I entered a VIX short strangle correctly, and its been paying off steadily since with positive theta
I know, but taking a loss roughly equal to the prem in the outside strangle is absurd. I am trying to implore you learn synthetics/arbs. It takes a few hours.
Any books you recommend ?
Honestly, no. I've yet to find any text that deals with spread-arb. Most cover the maths related to dynamic hedging and replication/strip-arbitrage. IOW, arbing BSM vol-output via underlying or vol at edge (-skew).
Calls are puts. Puts are calls. Stock + put = long synthetic call. Short stock + call = long synthetic put. Call spread + put spread = long box. Short call spread + short put spread = short box. It's why an inside and outside strangle are equal (less strike diff). Works with tenors as well.
Calendars. A call and put calendar are equal. A long put diagonal is = to a short call diagonal.
Flies. A call fly is = to a put fly with the same strikes. They are also = the iron fly (combination; straddle + wings). So there are three ways to replicate a fly (in vol only). You can structure a complex position with spot, but it can always be reduced to vol-only. IOW, you could trade a fly as; long stock/short two calls/long outside strangle, etc.
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I've taught my older kids how to trade. Their introduction to complex spreads/combos was always via the synthetics (not the assumed naturals). The intro to flies was via the synthetic short (gamma) fly in half size.
Long 50 XYZ shares; short (1) XYZ 100 call; long (1) 50P/100C strangle. Now, the rub is that the wings are double sized because you cannot reduce the size below a one lot without shares and the shares would cross.
Long 50 XYZ shares; short (1) XYZ 100 call; long (1) 50P/100C strangle. Now, the rub is that the wings are double sized because you cannot reduce the size below a one lot without shares and the shares would cross.
I'm only applying options to volatility indices right now, so what does one do there when you cant directly buy or sell the underlying? I read that
calls obviously are not puts, calls are calls.
If im going to understand something, I need to find the academic literature which explains it
for instance
https://quant.stackexchange.com/que...tic-replication-of-the-vvix-volatility-of-vix
I don't get what you are saying. what does "calls are puts" mean? that is illogical statement.
calls obviously are not puts, calls are calls.
If im going to understand something, I need to find the academic literature which explains it
for instance
https://quant.stackexchange.com/que...tic-replication-of-the-vvix-volatility-of-vix