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This argument about which is best can only be settled by answering what is the
original objective. If the Implied volatility of the option is less then that for
the future. Then purchase of the future and the put makes sense. If the future
explodes then the volatility will increase and the loss on the put will be reduced
because its implied volatility will rise. The floor traders can't play with the
price of the future like they can with the price of the options. Even with the
conversion reversal. The income from the short futures isn't like what you receive
on short stock. Also if the the future rises, the skew that occurs in futures
options will also reduce your loss there. I prefer this position to being long
calls because I know what the real bid and offer is on the future and the current
liquidity of the future. Many of the futures options have little or no liquidity
at all. So trade the future to the upside and when that runs out let the put run
to the down side. Ira.
nwinski wrote:
> 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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