Tip: Buying stock about 8% cheaper using synthetics :-)

E

earth_imperator

Take a look at this: https://optioncreator.com/stnfhn3
Watch the blue line in the PnL diagram from 0 to about 210 days (ie. the first 7 months):
it's straight like the line of the LongStock, but is about 8% cheaper based on normal CashAccount:
CostBasis = Strike_of_Short - Premium_of_Short + Premium_of_Long
= 100 - 11.92 + 3.57 = 91.65
That's about 8.35% cheaper than buying the stock for 100.
It work similarly also with higher IVs.
One can make it even more cheaper by using a higher strike for the Long.

stock_8pct_cheaper.png
 
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earth_imperator said:
Take a look at this: https://optioncreator.com/stnfhn3
Watch the blue line in the PnL diagram from 0 to about 210 days (ie. the first 7 months):
it's straight like the line of the LongStock, but is about 8% cheaper based on normal CashAccount:
CostBasis = Strike_of_Short - Premium_of_Short + Premium_of_Long
= 100 - 11.92 + 3.57 = 91.65
That's about 8.35% cheaper than buying the stock for 100.
It work similarly also with higher IVs.
One can make it even more cheaper by using a higher strike for the Long.
More...
Beware you are considering 210 days, yet you are ASS-U-MEing 0% interest injecting significant error into your numbers, especially as interest rates are being jacked up fairly significantly and often lately.
An additional simplification would be to use same strike for call & put to nullify any IV impact. -- dialing the strike up and down should be fine as long as liquidity is adequate on entry and exit.
 
stepandfetchit said:
Beware you are considering 210 days, yet you are ASS-U-MEing 0% interest injecting significant error into your numbers, especially as interest rates are being jacked up fairly significantly and often lately.
More...
It's relative: comparing the 91.65 to the 100 one would pay if bought normally.
So your argument about interest to pay is just a nullinger :)

An additional simplification would be to use same strike for call & put to nullify any IV impact. -- dialing the strike up and down should be fine as long as liquidity is adequate on entry and exit.
More...
Left as an exercise for you to present here... :)
 
stepandfetchit said:
An additional simplification would be to use same strike for call & put to nullify any IV impact. -- dialing the strike up and down should be fine as long as liquidity is adequate on entry and exit.
More...
There is no IV impact with this construct, as it's an IV neutral construct.
The more IV rises the more straight the blue line becomes, ie. becomes like the original line of the LongStock.
 
earth_imperator said:
Take a look at this: https://optioncreator.com/stnfhn3
Watch the blue line in the PnL diagram from 0 to about 210 days (ie. the first 7 months):
it's straight like the line of the LongStock, but is about 8% cheaper based on normal CashAccount:
CostBasis = Strike_of_Short - Premium_of_Short + Premium_of_Long
= 100 - 11.92 + 3.57 = 91.65
That's about 8.35% cheaper than buying the stock for 100.
It work similarly also with higher IVs.
One can make it even more cheaper by using a higher strike for the Long.

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But ......
If the stock closes @ 130 on expiration.
Your short 100P + long 130C = 8.35 profit
Compared to .....
Long stock position @ 100 = 30 profit

Graph for first 210 days looks nice but how likely is it to follow that nice curve?
Then figure in spreads on the 2 positions when you try to close & your advantage over the equity is probably minimal.
 
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taowave said:
Knucklehead has me on ignore,but not suprised by your responce..

Guy loves to ask questions/make statements that are way off,and dig his heels in when kindly corrected..
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He apparently still reads our comments even though he put us on Ignore and blocked us completely. LOL He formally created a thread bitching to @Baron about us "spamming on his thread" it was hilarious. LOL

https://www.elitetrader.com/et/threads/why-can-blocked-scum-still-spam-my-thread.370718/

And now he thinks he is being discriminated against. LOL https://www.elitetrader.com/et/threads/complaint-moderator-discriminates-me.371042/
 
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