what advantages Long Gut over Strangle?

[destriero]

OK - gonna have to read up on synthetics +++

clear that once short in crossed spreads the risks can get ugly

was thinking: practice first with long only volatility plays (guts / straddle / strangle)

Your risk on the out vs. inside in ATM structures with (any) time to expiration is not assignment. Your risk to gamma is an OOM larger. It is best-practice to trade the outside strangle due to microstructure. It's easier to move in and out of the trade and the NBBO will be tighter. Always choose the OTM structure when possible.

An example of a complex vertical and synthetic (OTM) equivalent.

XYZ at 1200.

Asym-put fly (NATURAL) = L2 1000P; S3 1200P; L1 1600P. Traded as a spread as all puts.

Asym-fly (SYNTHETIC) = L2 1000P; S2 1200P; S1 1200C; L1 1600C. Trade the above put fly as a synthetic (COMBO) in puts and calls. Truly, it's not a huge deal. You're not going to earn (much) more by trading the synthetic, but everyone trading complex instruments should have a foundation in synthetics and arbitrage.

The two positions are arb-equivalent. They have the same payoff. You'll receive a better fill in trading the combo. The natural has a 400 point ITM leg. The synthetic is trading an ATM call vert (the synthetic put spread).

The call vert in bold is equivalent to the 1x1 1200/1600 ITM put vert in italics. Again, constrained by the box arbitrage and well, algebra. You can involve shares in the (CONVERSION MKT) and the shares simply offset.

 

[mango23]

wow. This is an OOM above what I've seen. Gonna work through on paper a few times. And do we care about Dates and thetas?

 

[destriero]

wow. This is an OOM above what I've seen. Gonna work through on paper a few times. And do we care about Dates and thetas?

The risk is mostly when discussing DITM stuff which means you're holding something that went OTM -> ITM. In other words it was unintentional. Try and avoid guts when possible. That's all.

 

[destriero]

Can't see any picture, and you'd have to show me where my math is wrong, but whatever, I come here to try to answer questions with examples and help people if possible. You're here to insult people and brag about how much money you've got.
Incidentally, I have people telling me you can get me banned. That's probably for the best, since my opinion of you is now as low as your own opinion of yourself. anybody sure of himself don't need to brag and insult. so, do your damnedest. and if you've got me blocked, I'm not sure exactly how you're seeing my posts. If I click on "reply" when your name shows with no content as last post, I can quote your post. A defect in forum software that needs to be fixed.

anyway, Piss off. I'll answer anybody whenever I please, and if you don't like it, run sniveling and crying to whomever you snivel and cry to. Talk about some sad ass personality defects.

The only thing going for you is your anti-Trump stance. So I apologize for going off on you... even though you're wrong about everything you've proposed in this thread.

lol get you banned? That's a first.

 

[destriero]

Here's an easy one, AMZN closed at exactly 3200. so, the ITM(In the money) (long guts) position of 3190 calls and 3210 puts cost 83.60(calls) and 79.39( puts) for a combined 162.99. Worst case, the stock closes at 3200 next Friday. You get a total of $20...$10 for the calls and $10 for the puts. which is "The ITM position will at least give you something in every scenario"
On the other hand, the OTM(out of the money) position of 3210 calls and 3190 puts cost $73.60(calls) and $68(puts) for a combined $141.60 If, worst case, AMZN expires anywhere between 3190 and 3210 you get zero, which is "whereas the OTM may not"
I know this may seem complicated, but it's not. In the worst case with the In the Money position, you get $10 for puts plus $10 for calls, total $20... and in the worst case in the Out of the Money position, you get $0.

Actually, it don't even seem complicated.

omg. You're paying $20 more for the guts--hence the $20 intrinsic value at expiration. Right? The difference between the guts and the outside is the value between strikes. It's not added value.

No it's not complicated. You cannot handle arithmetic.

We're discussing the prem/discount on the inside/outside relating to box arbitrage or assignment risk and you're sitting in the corner eating paste.

 

[old coot]

My God, man, have you no decency at all?? PLEASE put me back on block, it was such a disappointment to open the page and actually see something you wrote. I didn't bother reading anything except one post, and in that one, you call me a liar. Nope. The only post I could see was the last one in the topic, yours..a blank box with your name on it. when I clicked on it, it showed what was in THAT post, not previous posts. So, I did not lie. But, considering your general insulting manner, no surprise your only reflex was to call me a name. Big deal. But, once again, you're calling someone a liar for telling the truth. Try it with one of your sock puppets.
Anyway, please block me, and I'll try the same. I've never done this in 25 years of forums, but I've never run up on quite as bid an insulting braggart either.

 

[old coot]

As noted in my post last Saturday:
AMZN closed at exactly 3200. so, the ITM(In the money) (long guts) position of 3190 calls and 3210 puts cost 83.60(calls) and 79.39( puts) for a combined 162.99. Worst case, the stock closes at 3200 next Friday. You get a total of $20...$10 for the calls and $10 for the puts. which is "The ITM position will at least give you something in every scenario"
On the other hand, the OTM(out of the money) position of 3210 calls and 3190 puts cost $73.60(calls) and $68(puts) for a combined $141.60 If, worst case, AMZN expires anywhere between 3190 and 3210 you get zero, which is "whereas the OTM may not"

Assuming you held to the very end of the day, the value of the ITM position would be 3210(Your point of entry on the put, abbreviated to YPOE)-2962(Friday's close)
which equals 248 minus the total cost of the ITM position(163) which would give you a net gain of $85. An 85 dollar gain is a 53% profit. Congratulations.
If you had gone with the OTM position, the math would be: the exercise value of the OTM position would be 3190( YPOE on the put)-2962(Friday's close) which equals 228 minus the total cost of the OTM position(141.60) which would give you a net gain of $86.40, ($1.40 more that the ITM position) which is a profit of 61%. Hmm, 15% more profit per dollar, which is a really good thing.

So, there you have it. not very much money difference($1.40 for ITM) in the return of the 2 positions, however a 15% better profit per dollar with the OTM's on the amount invested.
Real life experience, in this one case, shows that as I mentioned last week, " it won't make much difference" either way, but this is an example, hopefully the convolutions in this thread didn't throw you off your original line of thought. You'd need to look at costs and results in the stock you're following to get a better notion of how they will respond, since AMZN is highly volatile and the options are priced accordingly.
I imagine that the ITM position would be useful when the total cost of the position is less than the spread between your 2 sides.