Synthetic underlying and writing options

[Robert Morse]

Hello all, yes thank you all for attempting to sift through the garbled mess I wrote. Apologies for that.

@Robert Morse, what you wrote was what I was trying to get at; reducing cash outlay and then use the synthetic instead of buying stock. This isn't something that I am trying to do or necessarily want to do, I just wanted to gauge the flexibility of the instrument and seeing as I don't know any one who trades options I thought I'd ask!

Easy to do with large orders than 1 lots. Easier to do in a portfolio margin account than Reg-T. You have to have a plan for delta hedging or not to. I do not recommend this.

 

[ajacobson]

A covered write(Even delta neutral) is essentially a calendar a ratio calendar - but still a calendar of sorts. The underlying can be stock - a perpetual instrument reflecting all the carry and dividends, a synthetic, an in the money longer dated call or even a leap. All reflect the carry equation. If you are in a market where you can do a SSF against the short calls that is particularly nice, The questions becomes the capital required and risk. You mitigate some of the downside by going Delta neutral, but of course not all of it.. Upside risk is also an issue and hopefully you can delta adjust to mitigate both risks. You mitigate some of the capital required by doing a synthetic, but you get no gamma. ITMs as the underlying or leaps mitigate some of the capital required - but now you have to adjust two delta positions. You also get and pay for some gamma.
As Robert pointed out - Delta adjust can be easier if it a size trade

 

[dunleggin]

If you are in a market where you can do a SSF against the short calls that is particularly nice,

Thank you, AJ. Sitting here in HK scratching for something new to look at, you gave me a lightbulb moment.

 

[ajacobson]

One of my favorite places on earth.