Conceptually understand all Option strategies.
• With lesser costs
• With lower charges
• With lower margins
A breakdown of Option Synthetics:
<<< A Thread >>> 🧵
Collaborated with @niki_poojary
• With lesser costs
• With lower charges
• With lower margins
A breakdown of Option Synthetics:
<<< A Thread >>> 🧵
Collaborated with @niki_poojary
To become a very good trader:
We need a strong understanding of
- Options and
- Futures
with their payoff graphs.
Traders have no clarity regarding synthetics & are just too confused.
Let's begin understanding synthetics & how they can help us! ↓
We need a strong understanding of
- Options and
- Futures
with their payoff graphs.
Traders have no clarity regarding synthetics & are just too confused.
Let's begin understanding synthetics & how they can help us! ↓
Synthetics are formed by the mixture/combinations of any two of the following three.
1. Calls
2. Puts
3. Futures/Stocks
You don't even need to touch futures/stocks.
Cool?
Whatever kind of payoff graph you want, you can get via options only.
1. Calls
2. Puts
3. Futures/Stocks
You don't even need to touch futures/stocks.
Cool?
Whatever kind of payoff graph you want, you can get via options only.
Memorize:
Fut buy + Put buy= Call buy
Ft buy + Call sell = Put sell
Ft sell + Call buy = Put Buy
Ft sell + Put sell = Call sell
Ft buy = Call Buy + Put Sell
Fut sell = Put Buy + Call Sell
This is your bible and must know, will make everything easy.
Fut buy + Put buy= Call buy
Ft buy + Call sell = Put sell
Ft sell + Call buy = Put Buy
Ft sell + Put sell = Call sell
Ft buy = Call Buy + Put Sell
Fut sell = Put Buy + Call Sell
This is your bible and must know, will make everything easy.
Advantages and Disadvantages:
5 Advantages to trade via synthetics.
Also, we'll look at 3 problems and 4 myths about strategies.
Let's begin, by looking at the advantages:
5 Advantages to trade via synthetics.
Also, we'll look at 3 problems and 4 myths about strategies.
Let's begin, by looking at the advantages:
1) Increased Leverage
Synthetics increase your leverage due to lower margins.
For eg, if you want to buy a stock you have to pay a huge margin.
Instead of that you can buy an ATM call and sell an ATM put.
Vice versa for selling.
Margins are drastically lower via options.
Synthetics increase your leverage due to lower margins.
For eg, if you want to buy a stock you have to pay a huge margin.
Instead of that you can buy an ATM call and sell an ATM put.
Vice versa for selling.
Margins are drastically lower via options.
2) Charges are drastically lower
There is a cost to trade in futures in the form of huge STT charges, brokerage etc.
Options charges are way lower, so from a charged viewpoint synthetics make more sense.
Wherever we can avoid futures we should.
There is a cost to trade in futures in the form of huge STT charges, brokerage etc.
Options charges are way lower, so from a charged viewpoint synthetics make more sense.
Wherever we can avoid futures we should.
3) Trade-in far month expiries for eg December
If you want to go long in July series now, can you go long in futures? No.
But you can sell puts and go long in July series now in options.
If you want to go long in July series now, can you go long in futures? No.
But you can sell puts and go long in July series now in options.
4) Mtm loss isn't settled through cash
We cannot short stocks in India, we need to trade via futures. Some traders don't like to trade in futures as they trade via collateral and mtm loss needs to be paid daily.
Synthetics takes care of that as u only have to pay when booked.
We cannot short stocks in India, we need to trade via futures. Some traders don't like to trade in futures as they trade via collateral and mtm loss needs to be paid daily.
Synthetics takes care of that as u only have to pay when booked.
Problems:
1. Liquidity Issue - In stocks, there are liquidity issues when you try to use synthetics in ITM options.
2. Indian markets have low liquidity in contracts beyond the current month.
1. Liquidity Issue - In stocks, there are liquidity issues when you try to use synthetics in ITM options.
2. Indian markets have low liquidity in contracts beyond the current month.
Eg: Reliance CMP is 2400
Covered call = Fut buy + 2600 call sell
Put sell via synthetics = 2600 Put Sell
Low liquidity here in the Put sold.
Covered call = Fut buy + 2600 call sell
Put sell via synthetics = 2600 Put Sell
Low liquidity here in the Put sold.
3. Mtm Loss needs to be paid in cash daily:
Options mtm losses can be adjusted against collateral till you don't "book" the loss.
Futures irrespective of if you book or don't book the loss, you still need to pay by cash daily.
Options mtm losses can be adjusted against collateral till you don't "book" the loss.
Futures irrespective of if you book or don't book the loss, you still need to pay by cash daily.
Mths:
Traders trade triple straddles and inverted strangles frequently.
These traders have very less understanding of options.
Examples:
1) Triple Straddles are the exact same thing as Selling a straddle and 2 Strangles.
2) Inverted Strangles > Strangles. No, They're same.
Traders trade triple straddles and inverted strangles frequently.
These traders have very less understanding of options.
Examples:
1) Triple Straddles are the exact same thing as Selling a straddle and 2 Strangles.
2) Inverted Strangles > Strangles. No, They're same.
3. Futures "hedged" with puts
If you buy a call profit is unlimited, but if no movement occurs then the option will deteriorate in value.
If you buy fut and buy put, and if the stock doesn't move, the put goes to zero and fut doesn't give profit.
Both are the same.
If you buy a call profit is unlimited, but if no movement occurs then the option will deteriorate in value.
If you buy fut and buy put, and if the stock doesn't move, the put goes to zero and fut doesn't give profit.
Both are the same.
Some people avoid option buying due to:
1. Low probability of success
2. Constant theta decay.
These same traders when they trade futures are buying puts as "hedges" too which is the same as buying options.
This is totally illogical.
1. Low probability of success
2. Constant theta decay.
These same traders when they trade futures are buying puts as "hedges" too which is the same as buying options.
This is totally illogical.
4. Covered Calls
Can achieve the same via only selling puts.
When we buy fut and sell call to "hedge" we pay two margin requirements.
Selling a put requires only one margin.
Vice-versa for covered puts.
Can achieve the same via only selling puts.
When we buy fut and sell call to "hedge" we pay two margin requirements.
Selling a put requires only one margin.
Vice-versa for covered puts.
If you liked this thread, here's another you might enjoy reading:
That's a wrap!
If you enjoyed this thread:
1. Follow us
@Adityatodmal & @niki_poojary
for more threads on Price action, Option Selling & Trading growth.
We've got you covered.
2. RT the first Tweet to share it with your audience.
I appreciate it!
If you enjoyed this thread:
1. Follow us
@Adityatodmal & @niki_poojary
for more threads on Price action, Option Selling & Trading growth.
We've got you covered.
2. RT the first Tweet to share it with your audience.
I appreciate it!
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