Controversial Option Discussion Of The Day - Calls and Puts

[wayneL]

One of the first thing professional traders are taught is:

A call IS a put. A put IS a call.

Discuss.

[Timmy]

Wayne ... I'm looking forward to this, I think I might learn something.

I have been sitting here trying to understand this, or at least get some sort of handle on it.

The only thing I can come up with is if I buy a call on, say, WBC (random stock pick) I am, in effect, also buying a put on my cash ... the right to 'short' cash in exchange for shares in WBC.

Am I getting warm?

[matty2.0]

Quote: Originally Posted by wayneL A call IS a put. A put IS a call. Discuss.

[beerwm]

Quote: Originally Posted by wayneL One of the first thing professional traders are taught is: A call IS a put. A put IS a call. Discuss.

[beerwm]

ok new theory-

I dont know options;

but... im guessing the value of a call/put is reflected on the volitily of a stock amongst other things.

so price of call = put - under same circumstances

[dutchie]

A call for one person is a put for the other side. etc.

[wayneL]

OK I've kept everybody in suspense long enough. Not through intentional mind games, just through normal Sunday recreational activities. Anybody in London interested in Bohemianism, get your @ss to Camden.

We all know the differences between a call and a put... one is right to buy/obligation to sell, the other a right to sell/obligation to buy.

What prompted this thread was the discussion of synthetics on the other thread, and this is what they are trying to get at with the statement in the opening post.

They are trying to get traders to understand that there is a direct mathematical relationship between a call, a put, and the underlying stock. They are trying to get people to understand synthetics.

This is reflected in the put/call parity equation, viz (adjusted for dividends and cost of carry):

The call option price - corresponding put option price = stock price - strike price.

Also, the absolute value of delta of the call + the corresponding put, must equal 100, which is the precise absolute value of any stock position.

Further evidence is in the fact that a put can be converted to a call and visa versa, buy simply adding or subtracting stock, thereby changing the delta. All other greeks are identical. A call is a put + stock. A put is a call - stock.

One might argue over the semantics of the statement, but the idea is to get people thinking the right way, to think in terms of synthetic equivalence.

That done, the trader can never again be fooled into believing some of the nonsense spouted by ersatz experts in various places.

That's it.

[wayneL]

Jesus! That killed off the thread.

[beerwm]

Quote: Originally Posted by wayneL Jesus! That killed off the thread.

[wayneL]

Pick the odd one out and why:

1. Delta
2. Gamma
3. Theta
4. Rho
5. Sigma
6. Vega

[Frogacle]

Rho because it ends with a different vowel.

Its either that or Sigma, which I've never seen used in the context of options.

[wayneL]

Quote: Originally Posted by Frogacle Rho because it ends with a different vowel.

[Cartman]

Quote: Originally Posted by wayneL Pick the odd one out and why: Delta Gamma Theta Rho Sigma Vega

[wayneL]

Quote: Originally Posted by Cartman Uncle "Vega" was flown in from Panama .... he's not even Greek ! ..... im sure there is more to it than that though

[mazzatelli1000]

Uncle Vega can change his name to Kappa
Then he can fit in with the rest

How about this timeless statement from a questionable character
"Credit spreads are better than debit spreads because they...you guessed it bring in a credit to your account. Get paid first, ask questions later"

True or False and why

[Cartman]

Quote: Originally Posted by wayneL Bingo. Your special prize is being mailed to you.

[cutz]

Quote: Originally Posted by mazzatelli1000 "Credit spreads are better than debit spreads because they...you guessed it bring in a credit to your account. Get paid first, ask questions later" True or False and why

[Ageo]

Quote: Originally Posted by Cartman it actually confuses me why so many "long term" investors go out and buy BHP or CBA or whatever when they could write put options and collect the monthly premium and own the stock at a lower cost base if exercised ----- using this strategy at cycle bottoms seems a common sense/simplistic way to use options/buy stocks

[Toothyfish]

Uncle Vega sure goes by many names, I've heard he's been called Omega as well.

[wayneL]

Quote: Originally Posted by mazzatelli1000 Uncle Vega can change his name to Kappa Then he can fit in with the rest