What is name of this options position (Little help, please)?

Thanks Dest.

Am I correct in the understanding that the main risk is early assignment?
At expiry inside the body, it's basically a wash as you can't be long/short the same underlying in one account, so assuming equal sizes, it's net zero.
Before expiry, that's another story. You get assigned and then you are exposed to adverse move either overnight or over the weekend.

Am I missing anything?
 
luckfnlou,
I'm looking for a theta burn/volatility drop.

Read a post where somebody (Dest, but can't recall the alias) said time/vol are synthetics of each other. As Jeremy Irons said in Margin Call "Give me some rope" (while I paraphrase). To me, that means theta decay and vol drop are two sides of the same coin. Hold time constant and drop vol=> option extrinsic drops. Hold vol constant and move forward in time => option extrinsic drops. Increase in vol looks like an "increase" in time (whatever that means, I guess effectively moving your expiration out or something).

Since you short the guts, there's a lower bound (strike delta...as long as you end up within the body strikes). Everything above that is premium.

Now that's only at expiration the graph looks all pretty. When I stepped time in the TOS P&L tool, it gets kind of funky prior to that depending on where you set volatility. It kind of looked like a wave sweeping right to left as you get closer to expiration. In this case the goal would be to hold to expiration with the strike contained in the body.

Long strikes are outside the short.
The body is wide (big gap between short call and short put strikes) and the gap between the long and short options is small (long call/short put and long put/short call).
 
Keep an eye on your forward. There is no utility to shorting the box at retail. IOW, nobody is going to hand you the short box at edge. You're borrowing due to the deep ITM credits.

The only real exposure is rho, but assignment can't hurt you as you're in two opposing synthetics. You're short the synthetic at the 90 strike if you are assigned on your 110P. The trade would morph into a conversion (actually you are long the synthetic 110P).
 
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TheGoonior2 said:
Excuse my daftness, but i'm a bit unfamiliar with the lingo. What do "keep an eye on your forward" and "at retail" mean?
Thx
More...


There isn't any risk but watch the atm synthetic for the forward price to exp. Retail meaning there is no point in trading boxes/conversions unless you're using it to flatten your book or defer taxes... the Trump IRS is retarded, but you're asking for an audit if attempting the latter.
 
So, just for the record, this is actually a dumb and pretty much useless trade to put on.
PNL graph can fool you in to thinking it's (much) better than it really is, but also some stuff to consider from the real world:

1) Early assignment (pretty much guaranteed).
2) Cost to borrow. Assuming you can actually hold the short and don't get margin called, how much does it cost to do so?

Anyway, thanks for all the replies and feedback.
 
TheGoonior2 said:
So, just for the record, this is actually a dumb and pretty much useless trade to put on.
PNL graph can fool you in to thinking it's (much) better than it really is, but also some stuff to consider from the real world:

1) Early assignment (pretty much guaranteed).
2) Cost to borrow. Assuming you can actually hold the short and don't get margin called, how much does it cost to do so?

Anyway, thanks for all the replies and feedback.
More...


It costs a fortune to borrow because the only time you’d do this is when the box appears cheap, but the boxes are cheap (or providing large credit when selling, where your example makes money) exactly when the costs to borrow are the highest, like 0.5% or more per night. And you may get assigned on a Friday and pay for 3 nights.
And the exercise/assignments also make most sense when %interest is the highest because then the other party will want to hold the stock and earn the overnight %interest, vs holding deep ITM calls that do not offer anything.
 
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