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PebbleTrader
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Postby PebbleTrader » Thu Feb 28, 2013 8:00 pm

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PebbleTrader
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Postby PebbleTrader » Thu Feb 28, 2013 8:08 pm

Those are some examples of some of the strategies.
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lazygeorge
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Postby lazygeorge » Thu Feb 28, 2013 8:11 pm

Great work PT..

Now let me catch up :D

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Postby PebbleTrader » Thu Feb 28, 2013 10:23 pm

Are you guys using TOS?

That's who I used back when I was trading equities...
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PebbleTrader
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Postby PebbleTrader » Thu Feb 28, 2013 10:30 pm

Selling Premium:

-Most options expire worthless or worth less.

-In anticipation of a decline in implied volatility.

-In anticipation of a tight trading range for the underlying.

-Less dependent on the direction for the underlying.

-To have positive theta. (Time is on your side)

-In the hope that the two put options and call, both out worthless.

-One gets the impression that the level of implied volatility will be greater
than short the actual volatility in the market for a cost-effective scenario
"negative gamma scalping."
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Dillinger
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Postby Dillinger » Fri Mar 01, 2013 12:57 am

PebbleTrader wrote:Are you guys using TOS?

That's who I used back when I was trading equities...


yeah I seemed to like the options on TOS the best....

Plus you can trade everything from that account if you want(futures,stocks, forex) and you get all the qoutes free of charge.

any other broker I have used charges you for the futures qoutes or dont offer them

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Postby PebbleTrader » Fri Mar 01, 2013 3:03 am

Thanks Dillinger
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Postby PebbleTrader » Fri Mar 01, 2013 3:05 am

Synthetics

Two definitions of the word "synthetic" are:

-produced artificially
-devised, arranged, or fabricated for special situations to imitate or replace
usual realities

These definitions can describe "Synthetic Positions" in option trading. To
understand synthetic option positions (or "synthetics"), we have to
understand the basic relationship between puts and calls:

K + C = U + P + I - D

Where
K = Strike Price
C = Call
U = Underlying stock price
P = Put
I = Interest
D = Dividends

For most situations, we can assume interest and dividends are small
enough to ignore and we will simplify our equation to exclude them.
However, there are situations where interest and dividends do affect this
equation such as high interest rates, long time periods or large dividends
for example.

Simplifying our equation, we now have

K + C = U + P

Since the strike price is arbitrary and a constant, let's remove it from the
equation to see what the relationship is between the Call, Put and
Underlying security price boils down to:

C = U + P

Long is positive and short is negative. So we have

+C = Long Call
-C = Short Call
+P = Long Put
-P = Short Put
+U = Long Stock
-U = Short Stock

This simple equation let's you derive the six synthetic relationships quite
quickly. All you have to do is think back to your algebra class and solve
what synthetic you need by putting that variable alone on one side and
moving the rest to the other side of the equation. Remember, when moving
from one side to the other of the equation ("jumping the fence as my 8th
grade teach used to say"), you change the sign. So, we can now show the
six basic relationships, solved using basic algebra. They are:

Long Call = Long Stock + Long Put (C = U + P)
Short Call = Short Stock + Short Put (-C = -U - P)
Long Put = Long Call + Short Stock (P = C - U)
Short Put = Short Call + Long Stock (-P = -C + U)
Long Stock = Long Call + Short Put (U = C - P)
Short Stock = Short Call + Long Put (-U = -C + P)
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Postby PebbleTrader » Fri Mar 01, 2013 3:14 am

Benefits Of Synthetic Options Strategies

Synthetic Options Strategies are extremely flexible and allows you to
change the directional bias of the position quickly, without selling the whole
position and buying new positions.

How can we use this knowledge?

Hedge an existing position.

Suppose you have a covered write on a stock but earnings are coming out
and you're worried the stock price might jump around a lot. Or you are
going on vacation and don't want to worry what the market is doing while
you're gone.

Since you know a covered write is identical to a short put synthetically, if
you buy a long put, that should completely offset your covered write and
completely hedge you while you go through earnings. No need to sell your
stock and buy in your short call. Just buy a put.

Reverse Market Directional Bias quickly

Suppose you are bullish on the market and have a Long Call. You change
your mind and decide you should be bearish. If you sold your long call and
bought long puts, you would have two commissions and two sets of
slippage to deal with. Since we know a Long Put = Long Call + Short Stock,
all we have to do is SHORT THE STOCK. This changes your position to a
synthetic Long Put with one transaction.

This technique is also VERY useful in very fast market conditions. Option
bid/ask spreads can really widen during fast markets so your fills closing
your Long Call and buying your Long Put might really put you in a hole
starting out. Since stocks are very liquid and have very tight bid/ask
spreads normally, shorting the stock is a very useful tool to convert your
Long Call position during a fast market.
Life is just a journey

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MightyOne
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Postby MightyOne » Fri Mar 01, 2013 4:07 am

Big boys leg into spreads =)

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