The BEST Indicator to tell whether an Option is OVERPRICED is...

[Allspread]

Quote from dmo:

This gets back to delta neutral spreading strategies that are probably more appropriate for futures options than stock options.

Might you elaborate a little on what you think about this? I go for delta neutral spread strategies on equity options. I do OK (I shoot for 5% a month in gains) but I don't trade futures. Trading a small account -- less than $20K.

What might the pros of futures options be vs. equity options in this situation?

 

[dmo]

Quote from Allspread:

Might you elaborate a little on what you think about this? I go for delta neutral spread strategies on equity options. I do OK (I shoot for 5% a month in gains) but I don't trade futures. Trading a small account -- less than $20K.

What might the pros of futures options be vs. equity options in this situation?

In futures it's so easy to use the underlying to get delta neutral. You can short futures in any amount just as easily as go long. And buying or selling futures to get delta neutral will REDUCE your margin due to risk margining.

Going short stock can be clumsy - you can run into hard-to-borrow situations. If you do hedge your options against short stock, apparently it's possible to lose the short. And the margining regs are a mystery, to me at least.

Dividends are an additional complexity you don't have to deal with in futures options.

 

[dmo]

To add to the above: The ease of covering your deltas with the underlying in futures has bred a different approach among futures options traders. When I was on the CBOT floor, the CBOE was right across the street and CBOE guys would often come over and check out our floor. Listening to someone talk about options, I could tell in a about two seconds if they had come over from the CBOE. Different approach entirely. As soon as someone mentioned "backspread," I could tell you with 100% certainty they had come from stock options. Futures options guys never, ever think about ratio-ing the options to get delta neutral. That's what the futures are for. The futures options approach is to do what you want to do in the options to get your gammas, vegas and thetas the way you want with no regard to deltas - THEN figure out your deltas and make up the difference with the underlying.

 

[c.chugani]

Quote from xflat2186:

c.chugani... long a call or long a put is not the synthetic equivalent of long or short the underlying by any means.

Kindly refer me to the post where I have stated this.

 

[FCostella]

Quote from increasenow:

The BEST Indicator to tell whether an Option is OVERPRICED is...

1-Implied Volatility
2-Gamma
3-Vega
4-Delta
5-Theta
6-Rho
7-Open Interest
8-Other...?

Without a doubt it is:

Delta Omicron Pi Epsilon

 

[increasenow]

Quote from FCostella:

Without a doubt it is:

Delta Omicron Pi Epsilon

wow...can you explain more what this is...this is very serious

 

[slapshot]

Quote from increasenow:

The BEST Indicator to tell whether an Option is OVERPRICED is...

1-Implied Volatility
2-Gamma
3-Vega
4-Delta
5-Theta
6-Rho
7-Open Interest
8-Other...?

for sake of discussion..lets use the QQQQ...

The price of the Option relative to the underlying.

 

[increasenow]

Quote from slapshot:

The price of the Option relative to the underlying.

yea...but...how do you know if 1 or 5 dollars is too much?you need to provide details and exact calculations..please

 

[slapshot]

Quote from increasenow:

yea...but...how do you know if 1 or 5 dollars is too much?you need to provide details and exact calculations..please

No, I don't need to provide details or calculations.

What you need to do is put in enough time/effort to watch the price action of the various correlated option contracts vs. the underlying's current price.

It is all in the tape.

 

[opt789]

This has been discussed before. You can take this thread out to countless pages and the answer will never change, and most will never accept that answer. Increasenow has yet to actually follow any of the good advice he has been given (on countless threads), and continues to look for easy answers. He has no idea how to trade, doesn’t even possess the most basic options knowledge, and yet asks a question to which he couldn’t possibly understand the answer. He needs to completely forget about trading options, paper trade an underlying until such time as he figures out that trading isn’t for him or learns how to trade, and stop using the word “serious”. He will not do these things of course, because he is a child who proved himself incapable of listening.

If you don’t already know the answer to the posed question, as a few here have shown they do, then you shouldn’t be trading options.