what advantages Long Gut over Strangle?
- Thread starter mango23
- Start date
LOL, what?
lol!
900C/1100P guts at 240 prem.
900P/1100C outside at 40 prem.
Duh! 200 points moar premium!
Dude, equivalent. It's the box arbitrage. Don't trade the guts unless you're a tax cheat or stupid (ostensibly both). The only utility (at retail) of the guts is to defer the closure of the position into the new tax year (or arbitrage). Nobody is going to quote you a box at edge. Do you think your fills will be better or worse trading DITM legs? C'mon. WTF.
You're short the outside strangle from 60 and it's marked to 20 in say Dec X. You're a "tax avoidance/aggressive" type who wants to cover the position at 20. You would buy the guts strangle in a 2021 expiration and the resulting position would be long the roll via two expirations. It's a box in tenors (roll). You have to go far enough out in the initial roll (initial guts buy in 2021) to allow for the roll at Dec X. You're rolling twice.
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.
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.
lol. Bye. Please stop talking out of your ass. Short the guts and buy the outside. Let us know how it works out for your PNL.
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@destriero - Ok good to have a plan to roll on down...
@old coot - get it.... yr example very close to the money. Any use in going further in? Less time value or something?
@old coot - get it.... yr example very close to the money. Any use in going further in? Less time value or something?
I already know there may be some trying to figure out where it will make a good play, so here's the answer to that. Suppose AMZN makes a percentage move same as last earnings..6.64% at the high of the day. So, at the current stock price of 3200, that would be $211.20. So, because adding is so easy, lets say that, given the costs in my previous post, AMZN is at 3411.20 There is not going to be any premium and there is not going to be any price on the puts, AMZN has always had earnings on Thursday after market and Friday is the big trading day, which is also when the options expire. At 3411, the ITM position(3190 calls) would be worth $221 and the OTM position(3210 calls) would be worth $201.
Now, if you take your ITM call price of $221 and subtract the total cost of the ITM position(162.99), your profit is $48. Your profit is 21.22% based on your cost. Take the OTM call price of 201 and subtract the OTM position cost of $141.60, you get a profit of $59.40. Percentage wise, based on cost, that is 29.5% profit.
I agree that 29% is more than 22%, but as I feel like I've shown, that would be based on a move the same as last earnings. Suppose, though, the move isn't that much, maybe 4%, which would be $128.Or, $3328 stock price. In that case, the calls would be worth(ITM)138 and (OTM)118. Subtracting your cost, you'd be,,,guess what?? In the hole. the ITM position would be 138-162.99, or -34.99 and the OTM would be 118-141.6, or -23.60.
well, you're thinking Wha fuh? Where will I actually make some money? with the ITM position, you're going to need 3363, a $163 move to make 1 cent. And the OTM position, you'll need 3351.61, or 151.60 move to make the same 1 cent.
As I pointed out in my OP, the deep pockets with algorithms will make sure it won't make much difference.
Now, if you take your ITM call price of $221 and subtract the total cost of the ITM position(162.99), your profit is $48. Your profit is 21.22% based on your cost. Take the OTM call price of 201 and subtract the OTM position cost of $141.60, you get a profit of $59.40. Percentage wise, based on cost, that is 29.5% profit.
I agree that 29% is more than 22%, but as I feel like I've shown, that would be based on a move the same as last earnings. Suppose, though, the move isn't that much, maybe 4%, which would be $128.Or, $3328 stock price. In that case, the calls would be worth(ITM)138 and (OTM)118. Subtracting your cost, you'd be,,,guess what?? In the hole. the ITM position would be 138-162.99, or -34.99 and the OTM would be 118-141.6, or -23.60.
well, you're thinking Wha fuh? Where will I actually make some money? with the ITM position, you're going to need 3363, a $163 move to make 1 cent. And the OTM position, you'll need 3351.61, or 151.60 move to make the same 1 cent.
As I pointed out in my OP, the deep pockets with algorithms will make sure it won't make much difference.