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Proffittak@xxxxxxx wrote:
> In a message dated 4/3/99 10:02:25 PM Eastern Daylight Time,
> nwinski@xxxxxxxxxxxxxxx writes:
>
> << HI
> > As i menthened to everyone before it is simple
> > if you are long sp@ 1300 you buy the 1295put
> > this will give you ALWAYS a max loss of $1250
> > and a week later when sp500 is 1.6% higher you sell the put at a small
> > loss(it has life to 6/18/99).
> > hope this helps
> > Ben,
>
> Long a futures contract and long a put = long 1 call. Rather than
> paying
> double commisions,
> why not just buy a call for $1,250, as it should be the same result with
> lower
> transaction costs.
>
> Simply,
>
> Norman >>
> good morning all
> a call that cost only 1250 will not move $250 for every sp point.
> doing it my way is an insurance policy that only reduces risk (even
> overnight) on
> the long sp with the ability to sell the insurance policy when the long
> trend has been established.
NW: Yes, calls tend to cost more than their equivlent put. But, with the
simple long call you will have to put up less capital than being long a future
and long a put. I also think that if you subtract the erosion and devaluatoin
of the put as the future appreciates that the net result will be about the same
as just
long the at the money or slightly out of the money call. When comparing these
two positions, remember that by being long only the call, you will incurr
premium erosion on only the call vs. premium erosion of both the put and the
futures contract.
>
> In my trading an establish move is when spoos are 1.6% ahead of my buy
> price.
> so in my example. when i buy sps @1300 and bought the 1295 june put. i
> will sell the put when spoos hit 1320.8.
> at that point will put the stop loss on the future@xxxx
> some days this happen as a day trade!!!!
NW: So how much did you lose on the put? I bet the amount you lost on the put
is just about equal
to the amount you complained you didn't make on the call? There are traders on
the floor who make it their business to keep these things in line. A one or two
tick variation in a conversion type situation is a big profit making
opportunity for the floor traders. Therefore, their actions will not allow the
long put, long futures, vs. long call to get more than a few ticks out of line.
Therefore, with everyone properly valued, the long call should act the same as
your synthetic call (long 1 futures and long 1 put) only you will have more
transaction costs. The big difference comes from the fact that the floor
traders values the transation costs as reflected by the conversion values based
on their low cost. But, you must pay off floor costs, unless of course you are
a floor trader. So, an extra transaction for them may only cost them $1 each
way whereas it will probably cost you $7 and up each way, not to mention their
abiility to buy on the bid or sell on the ask vs. your probable slippage. . The
net result is that fewer transaction costs has a bigger impact on the bottom
line for the off floor trader than it does for the floor trader. Calls that
are valued based on the long futures and long put will in the eyes of the off
floor trader tend to be slightly undervalued because the floor traders only
factor in their transaction costs .
The bottomline is, try it, you might like it. Monitor how the two positions
compare in a real time situation. You may be converted. <G> On the other
hand, there maybe times when the married put (synthentic call) is relatively
undervalued vs. the comparable call. On those occasions it makes sense to go
long the futures with a long put. But, to go into the market with a blind bias
is like giving the floor traders a blank check written on your account.
Exercisedly,
Norman
>
> best regards
> Ben
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