Writing Covered Puts

Speaking of intrinsic or extrinsic values, did you all know that if you have a collar or reverse collar with the strike prices of the puts and calls at the same amount, that the amount of the aggregate intrinsic value never changes?

Example: Short 1,000 shares of UNDerlying. Long 10 calls and Short 10 Puts, both at $90. No matter what the price of UND, the intrinsic value will always be negative $90,000. Therefore, as long as your net extrinsic values are increasing, you are making money. If they are decreasing, you are loosing money, and you need to look into adjusting your extrinsics.

Bob
 
In that posting I was beyond the covered put write which I started this thread with. What I had in mind was a situation when one starts by shorting 800 shares of a stock. At that beginning point, the result is that those short 800 shares represent 800 negative deltas. Let's say that at this point in time, even though the trader has a negative bias toward the stock, they want to do something to create some additional positive deltas, and at the same time leave the shorted 800 shares alone. The way I see it they can either:

a. buy calls
b. sell puts
c. a combination of a and b.

The only point I was making in the posting which you quoted was that in deciding between a. and b., that it would be prudent to consider IV.
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This make no sense to me. You're going to let the IV determine the strategy to be utilized?

By opening an option position (a or b), you are changing the shorted 800 shares. They are not left alone.

You start off with 800 short shares. You have "a negative bias toward the stock and you want to do something to create some additional positive deltas"

a) If you buy 8 calls, you convert your 800 shares to 8 synthetic long puts. That's bearish.

b) If you sell 8 puts, you convert your 800 shares to 8 synthetic short calls. That's also bearish.

But being long 8 puts is very different than being naked 8 calls.
 
Quote from exQQQQseme:

Speaking of intrinsic or extrinsic values, did you all know that if you have a collar or reverse collar with the strike prices of the puts and calls at the same amount, that the amount of the aggregate intrinsic value never changes?

Example: Short 1,000 shares of UNDerlying. Long 10 calls and Short 10 Puts, both at $90. No matter what the price of UND, the intrinsic value will always be negative $90,000. Therefore, as long as your net extrinsic values are increasing, you are making money. If they are decreasing, you are loosing money, and you need to look into adjusting your extrinsics.

Bob
More...

Long call+short put is synthetic stock. So if you short the stock and long the synthetic stock you're flat and are not making any money. The synthetic stock will be above the natural by the cost of carry.
 
Speaking of intrinsic or extrinsic values, did you all know that if you have a collar or reverse collar with the strike prices of the puts and calls at the same amount, that the amount of the aggregate intrinsic value never changes?

Example: Short 1,000 shares of UNDerlying. Long 10 calls and Short 10 Puts, both at $90. No matter what the price of UND, the intrinsic value will always be negative $90,000. Therefore, as long as your net extrinsic values are increasing, you are making money. If they are decreasing, you are loosing money, and you need to look into adjusting your extrinsics.

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I don't follow this one either. A collar or a reverse collar "with with the strike prices of the puts and calls at the same amount" is not a collar or a reverse collar. They're called conversions and reversals.

Conversions and reversals have no potential to make money based on changing extrinsic values. If you put it on for a credit, that's your profit potential. Period. If that credit does not exceed the risk free rate of return, why bother?

Maybe the experts here can fathom something deeper from this. I can't.
 
Quote from exQQQQseme:

When you hit "Enter", the spreadsheet instantly shows the intrinsic and extrinsic.

I am happy to make this avail to anyone who requests. Just send an email to me at exQQQQseme@aol.com, and I will send the spreadsheet back to you, usually within a day or two.

Bob
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You need a spreadsheet to calculate that? That is by far the simplest arithmetic of all option trading. You should be able t do these in your sleep. I think you are trolling here. I find this hard to believe.

Ursa..
 
Quote from exQQQQseme:

Speaking of intrinsic or extrinsic values, did you all know that if you have a collar or reverse collar with the strike prices of the puts and calls at the same amount, that the amount of the aggregate intrinsic value never changes?

Example: Short 1,000 shares of UNDerlying. Long 10 calls and Short 10 Puts, both at $90. No matter what the price of UND, the intrinsic value will always be negative $90,000. Therefore, as long as your net extrinsic values are increasing, you are making money. If they are decreasing, you are loosing money, and you need to look into adjusting your extrinsics.

Bob
More...
Again, I think you're trolling. This again is such basic stuff. If you don't know this and you still haven't started in one of the recommended books by now, you are a silly kid and we're wasting our time.
If you're interested in options than start learning about them! Now
 
Nikko, when one starts off short 800 shares, yes, it's bearish. It is negative 800 deltas. You're right that if you either buy 8 calls or sell 8 puts, it is still bearish. But, my point is that it is not as bearish. By doing either a or b, the negative 800 deltas is reduced to 400 negative deltas.

As far as the synthetic equivalencies...I'm in enough trouble around here on that. What can I say? For years I have always loved shorting shares. By either adding calls or shorting puts, I consider this as an augmentation. Condoleeza Rice testified that she considers the troupe build up in Iraq as an augmentation. When the British speak of an augmentation, they are talking about a boob job. I kid you not. LOL

Bob
 
Nikko, you said, "Conversions and reversals have no potential to make money based on changing extrinsic values."

I must be doing something wrong because I am making money doing this. Perhaps when I learn what I am doing wrong I can stop making money.

Bob
 
Quote from exQQQQseme:

Nikko, you said, "Conversions and reversals have no potential to make money based on changing extrinsic values."

I must be doing something wrong because I am making money doing this. Perhaps when I learn what I am doing wrong I can stop making money.

Bob
More...
That's impossible. The extrinsics of call and put are the same (look in your spreadsheet lol) and the intrinsic of whichever is ITM is equal to the distance between strike and price. This says so until expiration. If there is a diff in intrinsic it is because the future cost is different from the current, caused by dividends and interest.

This conversion/reversal stuff is what keeps the options exchages going. They are traded the whole day to level open positions and flatten riskcurves. If there ever is a discrepancy it will be arbed out within 10 seconds.

Ursa..
 
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