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re: Can you sell calls to establish a short position?
Posted on 7/11/16 at 10:33 am to TheHiddenFlask
Posted on 7/11/16 at 10:33 am to TheHiddenFlask
He'd want a split strike synthetic probably. More room for error, although he doesn't seem to care much about this, or fully understand the risk he is undertaking for not much reward.
If he wants short S&P, the only way he gets a close approximation of that is short the index, not the ETF.
If he wants short S&P with a loss certain, there are numerous better ways to do this then the path he seems to be determined to take.
As it is, broken down into the simplest way I can break it down, the trade he suggest has very small upside, less than $1K, and unlimited downside.
A synthetic at least would give him more upside, but a option synthetic is ATM options, and he could potentially get knocked out of this trade in a heart beat.
Today's .48% swing pushed the strikes he would have sold for very little premium up 76.47%. And we ain't even at lunch yet. So if he tried to get out of what he had talked about entering, his realized loss on less than 1% SPY gain is almost 80% already.
But hey, what do I know?
If he wants short S&P, the only way he gets a close approximation of that is short the index, not the ETF.
If he wants short S&P with a loss certain, there are numerous better ways to do this then the path he seems to be determined to take.
As it is, broken down into the simplest way I can break it down, the trade he suggest has very small upside, less than $1K, and unlimited downside.
A synthetic at least would give him more upside, but a option synthetic is ATM options, and he could potentially get knocked out of this trade in a heart beat.
Today's .48% swing pushed the strikes he would have sold for very little premium up 76.47%. And we ain't even at lunch yet. So if he tried to get out of what he had talked about entering, his realized loss on less than 1% SPY gain is almost 80% already.
But hey, what do I know?
1
Posted on 7/11/16 at 2:46 pm to Iowa Golfer
Strikes as defined in the proposed trade are now are up close to 80%, with implied volatility of about 12% between now and close. Up 80% means the proposed trade's best case scenario is not buying to close, and hoping someone wouldn't exercise. Which, given these are SPY calls, someone potentially could have exercised to rebalance before close. Now if exercised, your theoretical loss should be 80%, same as a buy to close, but in practice it's not. It's going to cost even more without getting into a lot of minutia. This trade with no risk management has two strategies of last resort left for today. Hope and/or prayer.
12% is low volatility, becuase I'm predicting some amount of buying to close before close of market. Because a significant percentage of institutional call writers won't leave a sold call open overnight.
Awfully close to someone big exercising before the end of the day, maybe already even there.
This trade, without any risk management, is already mostly crushed before end of one day.
12% is low volatility, becuase I'm predicting some amount of buying to close before close of market. Because a significant percentage of institutional call writers won't leave a sold call open overnight.
Awfully close to someone big exercising before the end of the day, maybe already even there.
This trade, without any risk management, is already mostly crushed before end of one day.
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