Will buy 1 call and sell 1 put completely eliminate volatility?

[momoneythansens]

Quote from Grant:

moneythansense

“That means it is volatility neutral. It can't really be debated!” So he won’t be whacked if the market dives and vol jumps?

Synthetically equivalent means I can substitute your long futures with a long CALL and short PUT at the same strike when you aren't looking at any time and you wouldn't notice the difference in behavior of the net position.

No, he won't be whacked if vol jumps any more than he would be whacked if he had long futures and vol jumps.

“Does that make it bad”? There are better bullish positions than a short put with less risk.

Again, for all intents and purposes, it's the same risk as being long futures, which isn't necessarily bad. It's impossible to make recommendations pertaining to what's a better position as the OP hasn't stated degree of bullishness and timeframe. AFAIK, the merits of the position weren't the subject of the thread.

I think MTE, FullyArticulate, Daddy's Boy et al have now thrashed this topic to death LOL

Prosperous trading!

MoMoney.

 

[loufah]

Quote from MTE:

Vega, Gamma and Theta cancel out. That's why it is called a synthetic long. It has exactly the same greeks as the actual long - i.e. delta=1, gamma, vega and theta=0.

One thing I noticed last week was that SPY calls were much more expensive than puts. With SPY at $138.00, Nov 138 calls cost $1.50 but Nov 138 puts only cost $1.20. So if you bought a synthetic long, it'd cost .40 or so and I suspect it would have nonzero theta.

 

[FullyArticulate]

Quote from loufah:

One thing I noticed last week was that SPY calls were much more expensive than puts. With SPY at $138.00, Nov 138 calls cost $1.50 but Nov 138 puts only cost $1.20. So if you bought a synthetic long, it'd cost .40 or so and I suspect it would have nonzero theta.

Compare that to buying 100 SPY shares and not earning interest on 13,800 for the next few weeks.

Calls are always more expensive than puts for that reason. You're only tying up $150 rather than nearly $14,000. This is the cost of carry.

Risk Free rate is 5.4% (Eurodollars). I'm assuming you saw the 138 price on 11/1, which would be 17 days before expiration:

13,800 * .054 * 17/365 = $34.70

That's pretty close to the price you quoted for the synthetic long: $150-$120 = $30

So, there is "theta", but only inasmuch as covers the cost of carry.