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Robert,
though I don't consider myself a guru of anything, I do trade options
professionally, and I have seen this misconception come up several times on
this list. To clarify once again: suppose you consider a long straddle
consisting of 10 calls and 10 puts. To make for an *equivalent* position,
you would need to buy 20 calls and sell 10 futures contracts - not 10 and 5!
Just do the math, and you'll see for yourself.
Thus, being long 20 option contracts in both cases, you have exactly the
same Vegas (sensitivities to volatility changes) in the central areas of
both positions. Even the Thetas (sensitivities to time decay) are virtually
the same.
Differences arise in the follow-up strategies, of course. Orders in the
underlying are usually easier to handle due to better liquidity, and the
bid/ask spread, as a rule, will be tighter. On the other hand, margin for
the underlying is often a multiple of what you would pay for the options, so
if you want to hold the position for some time this would have to be taken
into consideration, too. This is especially true for equities, where the
money outlay can be a real drain on your capital available for trading.
Regards,
Michael Suesserott
-----Ursprungliche Nachricht-----
Von: Robert Hodge [mailto:r-hodge@xxxxxxxxxxxxxxx]
Gesendet: Sunday, December 10, 2000 21:56
An: realtraders@xxxxxxxxxxx
Betreff: RE: [RT] Re: Trading Events
Perhaps a cheaper way is to buy either the put or the call and take an equal
and opposite position in the relevant futures contract (eg buy a call and
short the future). I think this would be less sensitive to any (likely) fall
in implied vols after the tension is released by the news coming out while
still having the same fundamental characteristics as a straddle.
Perhaps an options guru can correct me though :)
Regards,
Robert
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