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Is the point that you are trying to make that at extremes of price movement the
straddle will have a delta value of 1000, not 500 like the 10 by 5 position?
In that case you would be correct.
MikeSuesserott@xxxxxxxxxxx wrote:
> 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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