I guess my only reply is that if you are trading naked shorts and absorbing
so much capital that an exercise would result in immediate liquidation, then
you have more serious problems than trying to understand synthetics. That,
to me, means that you are trading at greater than 100% risk of capital on
every single trade. And that means that eventually the odds will catch up
with you and the risk of going bust is enormous. If you only have a very
small capital amount then what you can trade gets seriously curtailed.
Synthetics are obviously out of the question and many kinds of so-called
"high probability, low return" types of trades (like condors) are likely to
be risky bets. Not saying that you can't become successful with this kind of
handicap (i.e. low/limited capital), but, in my opinion, you have to get
very good at trading things like plain verticals and theta negative trades
like backspreads.
-----Original Message-----
From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
Behalf Of Ricky Jimenez
Sent: Monday, May 17, 2010 9:03 AM
To: OptionClub@yahoogroups.com
Subject: Re: [TheOptionClub.com] GS TRADE [was:How do you manage your Vega?]
Whoops, sorry to have been careless below. The sentence below should
have read, "This has nothing to do with whether or not that short
stock is part of a synthetic short call". A synthetic short call =
short stock + short put.
On Mon, 17 May 2010 09:07:59 -0400, Ricky Jimenez
<rickyjim@bestweb.net> wrote:
>All I was pointing out is that the holding a DITM short call has
>somewhat different ramifications than a DITM short put. The biggest
>difference is that because you may have a broker that takes rules
>against naked shorting rules for stocks seriously, after exercise the
>resulting short stock may have to be liquidated at any time, This has
>nothing to do with whether or not that short stock is part of a
>synthetic short put. By the way, with respect to the 165 short put,
>since it has very little time value, buying it back now will have
>almost no effect on the total P/L expiration graph. I've tried itt.
>
>
>On Mon, 17 May 2010 05:09:40 -0000, "Karen"
><mcatolico@mindspring.com>u wrote:
>
>>again you have to understand synthetics. if i am short the call, that is
the exact same position as short stock and short a put. if i am short a call
and i get exercised and the put still has intrinsic value i will immediately
act to sell that put.
>>
>>all the other aspects of the trade are irrelevant: margin, price of the
underlying, and so forth. if you are naked short a call you have all these
things to contend with just the same as you would if you started with the
synthetic (short stock and short put).
>>
>>i get exercised all the time. it doesn't matter in the least. i don't
trade from a retail account but all the same, if you are not covering your
margin in a retail account then you won't be allowed to sell options short,
right? why would exercise change your margin requirements? (maybe i'm
missing something?)
>>
>>--- In OptionClub@yahoogroups.com, Ricky Jimenez <rickyjim@...> wrote:
>>>
>>> This works well when your short put is assigned. I am not so sure
>>> about short calls. Have you had the experience of your broker
>>> insisting you cover a short stock position, pronto or doing it for you
>>> when you are on a break? Certainly that messes up plans for your
>>> synthetic short call. I guess if you buy back the short put at
>>> exactly the same time the stock is covered, you won't add to the risk.
>>>
>>> On Sat, 15 May 2010 03:45:55 -0000, "Karen"
>>> <mcatolico@...> wrote:
>>>
>>> >as murthy pointed out, i meant extrinsic (instead of intrinsic)
premium.
>>> >
>>> >how would i handle assignment here? i would simply sell the call and
create the same synthetic short put position - with the additional credit of
the short call's value.
>>> >
>>> >assignment has nothing to do with deltas. the deltas wouldn't change
in the slightest. short a deep in the money put means that i am long 100
deltas. if i get assigned the long stock i would have the same long 100
deltas. selling the call against the stock simply converts the long stock
back into the original short put that someone was silly enough to assign to
me (and thereby give me another $0.05 for free).
>>> >
>>> >--- In OptionClub@yahoogroups.com, "Ricky" <rickyjim@> wrote:
>>> >>
>>> >>
>>> >> Since this is a paper trade, assignment won't happen before
expiration. However it would be helpful to us if you said a few words on
how you would handle the long or short stock that has come involuntarily
into your position. Would you immediately liquidate all or maybe just
enough to get delta neutral, if possible, or what?
>>> >>
>>>
>>
------------------------------------
The goal of TheOptionClub is to provide a forum for members to work together
for the purpose of furthering our individual understanding option trading.
All messages and postings, and any materials circulated are provided for
discussion and educational purposes only. No statement contained in any
materials from TheOptionClub should be considered a recommendation to buy or
sell a security or to provide investment, legal or tax advice. All
investors are encouraged to consult a qualified professional before trading
in any security. Stock and option trading involves risk and is not suitable
for most people. There is no guarantee that any information provided is
accurate and, may in fact, be wrong. It is understood that the participants
in TheOptionClub have varying backgrounds and degrees of experience in
option trading, and that regardless of experience each member is considered
a student. As such, any information distributed through TheOptionClub
should be considered with a critical mind and not relied upon as an
authoritative source.
To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.comYahoo! Groups Links
To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
No comments:
Post a Comment