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Apr 1, 2009 6:13 pm

[quote=Ron 14]If you are buying calls its long delta, selling puts is also long delta. So you are getting a 2.85 cent credit to buy the 5 strike, synthetically purchasing the stock at 2.15 and selling the actual stock at 2.69 thus a net of .54cents. I don’t know what the multiplier is but if one option contract equals 100 shares at expiration and you buy 1 call, sell 1 put and sell 100 shares the position is delta neutral. [/quote]

Not quite.  Depends upon the relative delta of the put and the call.

Apr 1, 2009 6:55 pm

Yes quite.  If you add the delta of a call and a put of the same strike it will always equal 100 and that is what we are talking about.

Apr 1, 2009 8:49 pm
Trade removed
Apr 1, 2009 8:56 pm
iceco1d:

 Good example btw Gaddock.  If you’re smart, you won’t share your program with anyone.

  My software is ever evolving. I have a team of programmers in India that will create any mad scientist trade I can dream up.   I would sell it for enough to retire on.   Software aside I don't mind helping people. I'll toss my friends some trades as a vehicle to get large referrals.   As I said, one thing they did not teach us but works better than anything I know of, make money for a millionaire during a market crash and get huge referrals.
Apr 1, 2009 9:08 pm
Ron 14:

Yes quite.  If you add the delta of a call and a put of the same strike it will always equal 100 and that is what we are talking about.

  You are of course speaking of them in the same month I'm sure.   I think you are right ... but maybe not. I'll observe the real time Delta next time I see one that's out of whack and report. You have to be quick to get an arb off so I don't analyze it much I just go for the fill.
Apr 1, 2009 9:47 pm

Yes same month. The same strike, same month delta has to equal 100. It is a matter of probabilities. One has to settle in the money. If the call has only a 7% chance of settling in the money, then the put has a 93% chance of settling in the money. One of them has to unless it settles exactly on the strike which is few and far between.

Apr 1, 2009 10:07 pm

Question is can a anomalous high Vix bump knock that out of whack? If so perhaps it would be something worth searching the chains for. I can search every chain there is in about 15 seconds. If I see any that are + or - 100 I’ll let you know.

  Unless it's in the context of an arb or another hedged trade buying options is a suckers bet.
Apr 1, 2009 10:09 pm

AS I said before I don’t take a trade unless I have a minimum 85% probability of success. Most are in the mid 90’s. I cant get my head around why somebody would put on a trade that only has a 5% chance of success not to mention having to pay fees and taxes.

Apr 1, 2009 10:15 pm

Actually, in a volatile market buying at the money straddles and aggressively hedging the delta is a very profitable trade. If of course you are watching every single move of the underlying and buying stock when it goes below strike and selling the same stock when the underlying rises above.

Gaddock, I agree in most situations buying options is a suckers bet. Especially, if you arent trading a product with many active strikes or if you aren't trading tons of contracts each day.
Apr 1, 2009 11:07 pm

If you will read my rules, back 10 pages, or so on selling puts (same apply to calls) and learn how to properly ‘roll’ a position that needs a little damage control I’m having more than 9 of 10 expirations out of the money. Even if we get the stock it’s because we want it. It’s a huge edge. Again, probabilities on any one trade mean nothing but over the large sample they are spot on. The way I look at it is we are trying to get in a good blue chip at a deep discount, if we dont we get paid for being wrong.

  This also makes cash an active asset class. When I back the puts up with cash I'll put the cash in TBills that expire on the third Friday of that month and get a little on top.   The question that I'll never get a good answer too is who the hell is willing to take the other side of such a trade?
Apr 1, 2009 11:18 pm
Ron 14:

Yes same month. The same strike, same month delta has to equal 100. It is a matter of probabilities. One has to settle in the money. If the call has only a 7% chance of settling in the money, then the put has a 93% chance of settling in the money. One of them has to unless it settles exactly on the strike which is few and far between.

  My understanding of the inverse Delta - it's the probability of the underlying stock price expiring AT or OUT OF the money. The price can even meander in and out of the money before expiration.   Another little trick for you. If you are a few cents in the money just before 4 pm on expiration day, instead of buying the position back at a ridiculous price or being assigned, simply move it to another account and end up with a short on the stock that you can cover on the open Monday AM.
Apr 1, 2009 11:24 pm
Gaddock:

[quote=Ron 14]Yes same month. The same strike, same month delta has to equal 100. It is a matter of probabilities. One has to settle in the money. If the call has only a 7% chance of settling in the money, then the put has a 93% chance of settling in the money. One of them has to unless it settles exactly on the strike which is few and far between.

  My understanding of the inverse Delta - it's the probability of the underlying stock price expiring AT or OUT OF the money. The price can even meander in and out of the money before expiration.   Another little trick for you. If you are a few cents in the money just before 4 pm on expiration day, instead of buying the position back at a ridiculous price or being assigned, simply move it to another account and end up with a short on the stock that you can cover on the open Monday AM.[/quote]   Right, because delta is the probability an option expires in the money. The delta changes as the stock price changes and as you get closer to expiration.
Apr 1, 2009 11:44 pm

Did you see the GM trade?

Apr 2, 2009 12:22 am

Yep, thats free money

Apr 2, 2009 9:23 pm
Trade removed
Apr 3, 2009 9:27 pm
Trade removed....   Locked in $.90 x 40,000 = $36000 or 90% trade with 20% down ($40k) reg T on margin.    36% trade if cash secured for an outlay of 200k in less than 90 days.   Risk = the firm pays a special dividend. Considering they are in huge debt with a ZScore of .12 not bloody likely. I calculate the failure rate percentile to be in basis points. Almost in Black Swan territory.   Think that's worth a referral or two?
Apr 4, 2009 12:51 am

Hard to believe people are not interested, perhaps you all think I’m full of crap.

  Was hoping to exchange good ideas & good trades, please respond if you have any.
Apr 4, 2009 1:10 am

My only concern would be that anyone placing a bid or offer in any of the options you are trading can see those opportunities and I would think they would act accordingly if that money is out there. There is no free lunch, but maybe those single stock option markets are so ignored that those opportunities are out there.

Apr 4, 2009 12:33 pm

Maybe. Not sure ‘why’ they are there but they are and I’ll take them. Why would a person take a trade with only 5% probability of success?

  They do and there are thousands of them to pick from. Luckily if one is astute and looks for pockets of 'stupidity liquidity' (I'll use that again lol) you can really cash in.
Apr 4, 2009 3:49 pm
Ron 14:

My only concern would be that anyone placing a bid or offer in any of the options you are trading can see those opportunities and I would think they would act accordingly if that money is out there. There is no free lunch, but maybe those single stock option markets are so ignored that those opportunities are out there.

  Why would that concern you?   What would you say another party "they would act accordingly" out of curiosity.   I don't think equity option chains for companies like X, GM, C, GE & CBI to name a few would be ignored. I think it's more of a function of finding the anomaly that creates these opportunities and pulling the trigger, I can and do. BUT I had to create the software to do it. I think that might be a little beyond the average rep. I also look for IV spikes that are 3 or more standard deviations away from the 1, 3, 6 & 12 month averages. That brings all sorts of interesting observations / opportunities. Find a spike like that on no news and typically you have found an event some insiders know but hasn't been made public yet.  My concern when getting into a trade like this with any size like the 400 contract trade is to get a fill and do it in the proper order getting the hard side first. I do it in parts since anything beyond 100 contracts has to be done on a paper ticket. By the time all that screwing around and the inability to work the order is done, one might get stuck with only half the trade. I do them in 100 increments just for that reason.