Weinstein Trading and Fading

Hi Bob,
Love this thread, but this piece of info is not true. In almost all cases, being short a put is exactly equivalent to a covered call. No doubt and no questions possible.

Quote from Robert Weinstein:


Lastly remember that for most stocks selling a naked put is not a totally synthetic as to a covered write as many believe. For the most liquid they are the same or very close but otherwise covered-writes make more sense (especially with interest rates so low like they are now)
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The only difference would be risks to the forward rate while holding a vs. b. Bob is unlikely to be concerned about that, so he's better-off simply selling the put.
 
Quote from talontrading:

Hi Bob,
Love this thread, but this piece of info is not true. In almost all cases, being short a put is exactly equivalent to a covered call. No doubt and no questions possible.
More...

What I posted is true and I am willing to bet on it. It is ONLY equivalent in a textbook and in the highest volume options being traded. Otherwise more often the covered call is the better route CURRENTLY for some types of trades and naked puts are better for others.

An example of why a naked put is different and better than a covered call - > buying power. Often you can control more shares with a naked put than you can with a covered call as the strike price may be the factor with the broker and premiums may for some brokers not allowed to be used to help pay for the underlying stock.

An example of why a covered call is different and better than a naked put -----> you are buying a dividend paying stock and the dividend is taxed at a different rate for income taxes than short term capital gains for a stock that your holding for less than a year and longer than 60 days (http://www.irs.gov/publications/p17/ch08.html#en_US_publink1000171584) do your own homework with taxes though and I am not a tax expert by any means.

I know, I know what your thinking about pricing but I can back up the simple pricing as well....

I am guessing that your thinking of what is known as parity between puts and calls. Basically the puts and calls need to be priced relative to each other otherwise there is the ability to arbitrage the difference. I understand and AGREE with you in that concept but a key point is missed when one assumes that parity exists.
The key point is volume of options. Calls on any given stock on any given day generally have greater volume than the puts and the spread as a result is smaller. This difference in volume between calls and puts means that with all else being the same with a stock that is not hugely traded the calls are a better deal more often than the put parity trade. If one doesn't mind paying the spread going into the the trade and exiting it would not matter but that doesn't mean its the same.

While the pricing will be in the same ball park generally it is not always and even when an arbitrage exists doesn't mean it can get done. You still need to have a counter party and that means you need to find a counter party that is less informed than they should/could be.

Its one of those classic cases where the textbook and the real world are not totally the same.

I hope that makes it more clear why puts and calls are often not the same in terms of synthetic parity (there are other smaller reasons but these are the biggest main points)
 
Most banks <> all banks.

you said your brother was a doctor. So what is he doing that means he doesn't have two years tax returns and a verifiable income? So what is the reason why he was turned down?

What your post states just doesn't really add up well for me. I think your leaving critical information out and just trying to be argumentative(which also appears to conflict with your statement that your not trying to be an ass).

This is a trading website so going outside that scope seems to be mostly useless. Even so I have stated before and I guess I can repeat the fact that I have other income beyond trading.

I have also offered my real estate services to you as well but you were not interested so I am unsure what else to say besides to wish you a good trading week.



Quote from piggie2000:

Robert what you're saying is not true. My friend is one of the biggest mortgage brokers in nyc and i can assure you unless you have steady VERIFIABLE income you will not get a loan with most banks even if you have huge assets. Yes that income can be day trading income but it has to be substantial and backed by 2-3 years of tax returns.You've admited you've made modest income day trading the past few years.Robert i'm not being an ass i'm just curious how you recieved a loan on "a bigger home". Are you saying you recieved a loan based on your day trading income?
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Glad to see you back posting! I would agree with your response to the doctors brother. Quite awhile ago a friend of my Dad's, who he grew up with, was amazed at the kids he was hiring out of school and their lack of money knowledge. He was a well known pathologist in his area of expertise and had the kids who were geniuses in his area applying to work for him. Unfortunately he noted these guys/gals had no clue about money. They thought because they had an MD they should be able to buy what they want, and the money would follow. He had guys buying the Mercedes and million dollar house as soon as they had the job offer. They made quite a load of cash, but no where near enough for this lifestyle plus their loans.
Maybe a different generation, and maybe I actually did listen to my parents more than I admit, but live within your means is a good way of life. The wife and I lived the pauper life putting her through school, and we haven't bothered to change since. I will say that is not what my kids are happy with, but I hope they get the idea down the road with their families.
Ok, done preaching for the day and back to trading. lol
 
if you do not realize that these two positions are synthetically equivalent, you're missing an important piece of how options traders think. There is a world of difference between how experienced options traders and retail guys think. There is a reason that floor traders can go home with hundreds of millions of dollars hedged with synthetics and sleep pretty well. (It's also interesting to know where those hedges can break down... things like boxes are not perfectly 0 P&L.... but based on your post I don't think you were driving into subtleties like that.)

Consider this case... what if you had a buy write in MON today, 47.50 strike. Stock closed today 56ish and the call was 8.50 @ 8.75 on close. Now, how do you unwind that trade if, for whatever reason, you wanted to be flat? Paying the spread on the call is unattractive, but simply buying the put which was 0.17 @ 0.18 = basically no spread.

This is kind of a silly example, but understanding synthetic equivalents is very, very, very important. This has nothing to do with your explanation of put / call parity.

I think this was what you were driving at with your misguided observation that call volume is higher than put volume... that does not translate into it being easier to buy puts than calls. It varies depending on moneyness and time to expiration, which is why you need to understand synthetic equivalents (and again they are equivalents.)

Bottom line is that a covered call is kind of a silly strategy and rarely appropriate. Understanding that it IS a short put highlights that for a lot of "investors". Unless you are doing HUGE size, the two positions are exactly equivalent.

Quote from Robert Weinstein:

What I posted is true and I am willing to bet on it. It is ONLY equivalent in a textbook and in the highest volume options being traded. Otherwise more often the covered call is the better route CURRENTLY for some types of trades and naked puts are better for others.

An example of why a naked put is different and better than a covered call - > buying power. Often you can control more shares with a naked put than you can with a covered call as the strike price may be the factor with the broker and premiums may for some brokers not allowed to be used to help pay for the underlying stock.

An example of why a covered call is different and better than a naked put -----> you are buying a dividend paying stock and the dividend is taxed at a different rate for income taxes than short term capital gains for a stock that your holding for less than a year and longer than 60 days (http://www.irs.gov/publications/p17/ch08.html#en_US_publink1000171584) do your own homework with taxes though and I am not a tax expert by any means.

I know, I know what your thinking about pricing but I can back up the simple pricing as well....

I am guessing that your thinking of what is known as parity between puts and calls. Basically the puts and calls need to be priced relative to each other otherwise there is the ability to arbitrage the difference. I understand and AGREE with you in that concept but a key point is missed when one assumes that parity exists.
The key point is volume of options. Calls on any given stock on any given day generally have greater volume than the puts and the spread as a result is smaller. This difference in volume between calls and puts means that with all else being the same with a stock that is not hugely traded the calls are a better deal more often than the put parity trade. If one doesn't mind paying the spread going into the the trade and exiting it would not matter but that doesn't mean its the same.

While the pricing will be in the same ball park generally it is not always and even when an arbitrage exists doesn't mean it can get done. You still need to have a counter party and that means you need to find a counter party that is less informed than they should/could be.

Its one of those classic cases where the textbook and the real world are not totally the same.

I hope that makes it more clear why puts and calls are often not the same in terms of synthetic parity (there are other smaller reasons but these are the biggest main points)
More...
 
It appears we are talking about two different things.

Yes, we are both in agreement that the contracts are the same and have to be in parity or there will be an arb opportunity.

Further I agree that if the spread between the put contract is one penny (and can be expected to remain that tight) then they really are parity and so a covered call = naked put and vise versa.

What I am describing is that while the contracts may be the same the actual real life cost of execution is often different. It is not uncommon to see the synthetic put of a covered call to have a spread of 20 cents while the spread of the calls is at 5 cents (with the point being that the spread is a little wider with the puts). This of course can mean another factor that must be considered because transaction costs add up. Since most stocks do not have put options trading at a penny spread your example is the exception rather than the rule.

I use the term "parity" to describe the relationship between pricing of the puts and the calls relative to the underlying. So at the very basic level you are dead on correct but I was trying to explain a little higher level of thought process in deciding which options to trade when one wants to trade options.

Best to you

Robert

Quote from talontrading:

if you do not realize that these two positions are synthetically equivalent, you're missing an important piece of how options traders think. There is a world of difference between how experienced options traders and retail guys think. There is a reason that floor traders can go home with hundreds of millions of dollars hedged with synthetics and sleep pretty well. (It's also interesting to know where those hedges can break down... things like boxes are not perfectly 0 P&L.... but based on your post I don't think you were driving into subtleties like that.)

Consider this case... what if you had a buy write in MON today, 47.50 strike. Stock closed today 56ish and the call was 8.50 @ 8.75 on close. Now, how do you unwind that trade if, for whatever reason, you wanted to be flat? Paying the spread on the call is unattractive, but simply buying the put which was 0.17 @ 0.18 = basically no spread.

This is kind of a silly example, but understanding synthetic equivalents is very, very, very important. This has nothing to do with your explanation of put / call parity.

I think this was what you were driving at with your misguided observation that call volume is higher than put volume... that does not translate into it being easier to buy puts than calls. It varies depending on moneyness and time to expiration, which is why you need to understand synthetic equivalents (and again they are equivalents.)

Bottom line is that a covered call is kind of a silly strategy and rarely appropriate. Understanding that it IS a short put highlights that for a lot of "investors". Unless you are doing HUGE size, the two positions are exactly equivalent.
More...
 
Banks typically are extremely willing to lend to physicians. Whether unsecured private loans or secured mortgages, most banks have special lending program specifically targeting doctors... Starting from med school days.

I speak as the husband of a current resident.
 
I prefer shorting more than going long so my first push was for overbought signals and now i started working on oversold. I will need to test them for a while before you see very many trades that are long.

I trade intraday as well as swing trade. I am willing to buy and/or sell options to get into a trade and/or to hedge a trade.
 
Another good day but only two trades.

I have been having computer issues and while I like to work (I like to save money) on my computers this issue may be beyond me. I have my main tradestation computer not being able to send email out on port 25. I am unsure what is blocking it as it is not my ISP and the port is open in windows firefall but tradestation is unable to use port 25 (and it is unable to use another port) and the same for outlook express (used to test port 25)

I reloaded the whole operating system with a new hard drive and had it working until I hooked up the old drive and then it appears i infected the new operating system with some type of spyware/virus. As soon as I hooked up the old drive to load up some of the backup settings (tradestation backup) port 25 stopped working again….urggggg

FOSL gap up and B8 both but I was late and small due to the computer issues + 260

DSIT over sold near the close fade. closed out about 5 minutes after the close in AH trading + 176

+ 437 (after commissions)
 
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