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I thought Mike's point was exactly what he wrote, no more no less:
To replicate 10 calls plus 10 puts at the same strike, you need 10 futures plus 20
puts (or short 10 futures plus 20 calls)
Delta is a bad way to analyze a straddle, because the net delta of a straddle is
zero, yet there is real risk in the position.
Regards
DanG
Ira Tunik wrote:
> 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
> >
> >
> > To unsubscribe from this group, send an email to:
> > realtraders-unsubscribe@xxxxxxxxxxx
>
>
> To unsubscribe from this group, send an email to:
> realtraders-unsubscribe@xxxxxxxxxxx
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