Strategy

[MTE]

Quote from Chuck Krug:

but if i were to be short the dec 1240 put
straight out
and say a bomb would explode and the sp would trade at 600, my losses would be enormous
were as now, i am short the fut contract

You are long the dec futures contract, not short!

 

[Chuck Krug]

yeah, short sep future
short sep put

long dec fut
+short dec call

 

[MTE]

Quote from Chuck Krug:

yeah, short sep future
short sep put

long dec fut
+short dec call

So, this position is synthetically equivalent to:

short sep 1255 call
short dec 1240 put

 

[Chuck Krug]

but my short put is covered because i am short the underlying

 

[joneog]

Quote from Chuck Krug:

but my short put is covered because i am short the underlying

You realize that the delta of the option changes, right?

You are short volatility.

 

[Chuck Krug]

yes
vol for put and call was just over 20%

 

[MTE]

Quote from Chuck Krug:

but my short put is covered because i am short the underlying

No, it's not covered. The short futures contract has already been used up, so to speak, to form the short put position.

You should really read up on synthetics.

 

[Chuck Krug]

what do you mean?
yes, the short put is covered by being short the underlying

 

[Chuck Krug]

joneog: do you mean that being
short the vix fut is the same position?

 

[joneog]

Quote from Chuck Krug:

joneog: do you mean that being
short the vix fut is the same position?

what I'm trying to tell you is that MTE is correct. as he's made clear your trade is a complicated way of being short a sep call and short a dec put, a strangle spread between sep-dec. that is not a covered position. short a strangle = short vol. the calendar aspect just makes it slightly more complex.

think of it another way. you're long es and short es in another month. but you're short two options.