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The conversion reversal was working. there is $2 worth of time premium
and IV in the options. Why not just short the stock with a buy stop
98. That is what you did when you sold both sides and you gained a full
$3+/- of protection. No market maker would do that spread unless he had
something on the other side. If you want to talk apples and apples.
Your profit is limited to the $40+/- dollars you sold and your risk is
unlimited. Where are you if Federated or Barnes and Noble or a
conglomerate comes in a buys AMZN at $250 or they declare chapter 11
because they are broke and they stop trading and the stock reopens at
$12? I would look at doing the opposite of what you did. Buy the $40
call and buy a delta neutral position in the puts. I haven't done a
matrix on the options but my guess would be a delta of about 8 for a
delta on the puts. That would be about 12 puts. Now with the calls at
$2+/- and the puts at $10+/- I made $8 * 12 contracts and lost $38 on
one. at 100 I can just sell out 11 puts and be delta neutral again at
100 for $3+/-. After you have put on the position, if the stock doesn't
move as anticipated, in the time frame allotted, you blow out the whole
position for commission and time premium loss. No big deal. Ira.
kohath wrote:
> I am sorry but the cash price of the share is relevant to the option
> pricethe example just doesnt make sense for the call to be so
> expensive it must be in the money or a long maturity likewise for the
> put to be so cheap Ok, Here's the chart. Let me know what your
> opinions are as to why the call had more than twice as much loss in
> value compared to the put. Yes, the put gained value because the
> stock dropped from 138 to 90, but, look at the relative difference in
> loss/gain of value. The call lost 1600% value, the put only gained
> %700.The call was $38 in the money, the put was $38 out of the money
> at the start. They are both Aug 100 (In this case, at least, the H is
> for Aug, T for 100)
>
> The point here is, the call went from 40 to 2.5, a 1600%
> decrease in price,the Put went from 1.5 to 10.5, a 700%
> increase in price. What I was pointingout was that, as a
> market maker, had I sold you 1 call at 40 and 1 put at 1.5,I
> would still be ahead 40 - 2.5 = 37.5, 1.5 - 10.5 = 9, 37.5 -
> 9 = 28.5. So,I would have a 28.5 X 100 = $2,850 profit for
> each of a call/put combination sold.That is why I said the
> price of the stock is irrelevant. Yes, the stock
> droppedsignificantly, but, look what the options did. Yes,
> there is more to being amarket maker than this simple
> illustration, but, there is a distinct advantageto selling
> verses buying.Kohath If you feel that the stock price is
> irrelevant, I'll take the other side of your trades all day
> long. The conversion reversal would have kept the puts and
> calls in direct relationship to one another. It looks to me
> like the calls started in the money and then ran out. Half
> a truth doesn't prove that you are right. Ira.
> kohath wrote:
>
> > It's irrelevant where the stock was then and where it is
> > now. The point is,Selling always brings in a higher
> > percentage than buying, always! Becauseof the melting
> > value of options, but, with selling there is limited
> > profit withunlimited risk!Kohath You left out one very
> > important fact. Where was the stock at point one and at
> > point 2 in your example. Why don't you post the stock
> > chart too? Ira.
> >
> > > Charts of AMZN 100, Call, Put.Call went from $40 to
> > > $2.50, put went from $1.50 to $10.50.As can be seen, same
> > > strike, same time frame. This is whyselling is more
> > > profitable than buying, but, selling involvesmuch higher
> > > risk. These two charts also show the marketmakers have a
> > > distinct advantage because of the meltingvalue of the
> > > options.Now if we had only sold 100 contracts of the
> > > YZZHT on July 16th!Kohath
> >
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The conversion reversal was working. there is $2 worth of time premium
and IV in the options. Why not just short the stock with a buy stop
98. That is what you did when you sold both sides and you gained
a full $3+/- of protection. No market maker would do that spread
unless he had something on the other side. If you want to talk apples
and apples. Your profit is limited to the $40+/- dollars you sold
and your risk is unlimited. Where are you if Federated or Barnes
and Noble or a conglomerate comes in a buys AMZN at $250 or they declare
chapter 11 because they are broke and they stop trading and the stock reopens
at $12? I would look at doing the opposite of what you did.
Buy the $40 call and buy a delta neutral position in the puts. I
haven't done a matrix on the options but my guess would be a delta of about
8 for a delta on the puts. That would be about 12 puts. Now
with the calls at $2+/- and the puts at $10+/- I made $8 * 12 contracts
and lost $38 on one. at 100 I can just sell out 11 puts and be delta
neutral again at 100 for $3+/-. After you have put on the position,
if the stock doesn't move as anticipated, in the time frame allotted, you
blow out the whole position for commission and time premium loss.
No big deal. Ira.
<p>kohath wrote:
<blockquote TYPE=CITE> <font color="#000000"><font size=-1>I
am sorry but the cash price of the share is relevant to the option price</font></font><font size=-1>the
example just doesnt make sense for the call to be so expensive it must
be in the money or a long maturity likewise for the put to be so cheap</font> Ok,
Here's the chart. Let me know what your opinions are as to why the
call had more than twice as much loss in value compared to the put.
Yes, the put gained value because the stock dropped from 138 to 90, but,
look at the relative difference in loss/gain of value. The call lost
1600% value, the put only gained %700.The call was $38 in the money, the
put was $38 out of the money at the start. They are both Aug 100
(In this case, at least, the H is for Aug, T for 100) <img SRC="cid:part1.37B47508.6EBE9484@xxxxxx"; ALT="" BORDER=0 > <img SRC="cid:part2.37B47508.6EBE9484@xxxxxx"; ALT="" BORDER=0 >
<blockquote
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; PADDING-LEFT: 5px"> The
point here is, the call went from 40 to 2.5, a 1600% decrease in price,the
Put went from 1.5 to 10.5, a 700% increase in price. What I was pointingout
was that, as a market maker, had I sold you 1 call at 40 and 1 put at 1.5,I
would still be ahead 40 - 2.5 = 37.5, 1.5 - 10.5 = 9, 37.5 - 9 = 28.5.
So,I would have a 28.5 X 100 = $2,850 profit for each of a call/put combination
sold.That is why I said the price of the stock is irrelevant. Yes,
the stock droppedsignificantly, but, look what the options did. Yes,
there is more to being amarket maker than this simple illustration, but,
there is a distinct advantageto selling verses buying.Kohath If
you feel that the stock price is irrelevant, I'll take the other side of
your trades all day long. The conversion reversal would have
kept the puts and calls in direct relationship to one another. It
looks to me like the calls started in the money and then ran out.
Half a truth doesn't prove that you are right. Ira.
<br>kohath wrote:
<blockquote TYPE="CITE"> It's irrelevant where the stock was then
and where it is now. The point is,Selling always brings in a higher
percentage than buying, always! Becauseof the melting value of options,
but, with selling there is limited profit withunlimited risk!Kohath
You left out one very important fact. Where was the stock at point one
and at point 2 in your example. Why don't you post the stock chart too?
Ira.
<blockquote TYPE="CITE"><style></style>
Charts of AMZN 100, Call, Put.Call
went from $40 to $2.50, put went from $1.50 to $10.50.As can be seen, same
strike, same time frame. This is whyselling is more profitable than
buying, but, selling involvesmuch higher risk. These two charts also
show the marketmakers have a distinct advantage because of the meltingvalue
of the options.Now if we had only sold 100 contracts of the YZZHT on July
16th!Kohath</blockquote>
</blockquote>
</blockquote>
</blockquote>
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