Hi, I'm new to SPY Options n learning the basics now. Lately, I have seen an interesting situation as the Calls price is following the SPY stocks price n start reversing BUT the Puts price starts pulling back up. I'm needing advices if I can SHORT the calls n LONG the PUTS simultaneously? Please kindly help and thank you so much.

Rgds.,

@ moneyboy888

Supposing you do not own the underlying (SPY or what ever market or share) the following counts:

- If you short any call, then you suppose the market to go down, so later you can buy back this call for a lower premium.

- If you go long a put, you suppose the market to go down, so later you can sell this put with a higher premium.

So when going for a logical build up for a simple option strategy or even may a bit more sophisticated option hedge strategy, you will start either with selling the call or buying the put, wait until market has moved down and then you think about your second leg. But it is not of any logic to sell a call and at the same time to buy a put.

Point to consider: Margins from your broker. If you sell a naked call, your risk is high, so the margin is quit high. If you buy a put, then your risk is defined with the price of the put.

Symple

Symple 

@ moneyboy888 Supposing you do not own the underlying (SPY or what ever market or share) the following counts: - If you short any call, then you suppose the market to go down, so later you can buy back this call for a lower premium. - If you go long a put, you suppose the market to go down, so later you can sell this put with a higher premium. So when going for a logical build up for a simple option strategy or even may a bit more sophisticated option hedge strategy, you will start either with selling the call or buying the put, wait until market has moved down and then you think about your second leg. But it is not of any logic to sell a call and at the same time to buy a put. Point to consider: Margins from your broker. If you sell a naked call, your risk is high, so the margin is quit high. If you buy a put, then your risk is defined with the price of the put. Symple

Sali Symple,

First of all, thanks so much for taking the time n respond to my post. Highly appreciated! Are u really in Zurich, Switzerland? :-) What a coincidence! My previous trading mentor on
bonds lives in the Ticino area. I look up on Google map n realize it's only about 3.5 hours driving south of Zurich. Haha...

Here are my questions for you:

Quoting 

- If you go long a put, you suppose the market to go down, so later you can sell this put with a higher premium.

I think u meant to say you suppose the market to go UP, so later.......I'm just confirming it with you again.

Ok, I didn't realize my questions on the "short the call n long the put" could be an option hedge strategy. So, if I understand you correctly, the setup would be like 1. Wait for market confirmation of down trend, 2. Short the calls, and then 3. add the 2nd leg which is to long the put. Is this strategy more risk averse?

What about the exit strategy to be handled? 1. Buy to cover the calls, then 2. Sell to exit the put?

Under the "Point to consider":
1. What is a naked call? Why selling a naked call is risky n expensive?
2. Why/how buy a put would define the risk based on the price? Is it bcz lower price lower risk? I have heard certain put option spread are more advantageous but still don't have the time to figure them out yet.

Thanks again! I await for your reply from the beautiful Swiss..

Sincerely,
Ted

moneyboy888 

Sali Symple, First of all, thanks so much for taking the time n respond to my post. Highly appreciated! Are u really in Zurich, Switzerland? :-) What a coincidence! My previous trading mentor on bonds lives in the Ticino area. I look up on Google map n realize it's only about 3.5 hours driving south of Zurich. Haha... Yes, I live in the greater Zurich area. It's an interesting place to live in. (https://uetliberg.roundshot.com/) Here are my questions for you: I think u meant to say you suppose the market to go UP, so later.......I'm just confirming it with you again. No, I not meant to say the market to go up. If you buy a put or short a call, then you want the market to go down, so your "Put" rises in value. You can keep this "Put" until option expiration or you can sell it when ever it fits your trading idea. In case you think market now has seen it's bottom, then you may want to sell your "Put" with a profit. So your simple option trade would now be closed. Ok, I didn't realize my questions on the "short the call n long the put" could be an option hedge strategy. So, if I understand you correctly, the setup would be like 1. Wait for market confirmation of down trend, 2. Short the calls, and then 3. add the 2nd leg which is to long the put. Is this strategy more risk averse? What about the exit strategy to be handled? 1. Buy to cover the calls, then 2. Sell to exit the put? Again, the logic is not given with this kind of "Option strategy trading" you have mentioned. You again speak of going short call and long put in a falling market. Forget about it as long as you do not own the "Underlying like future or stock". First sentence in my commentar: "Supposing you do not own the underlying (SPY or what ever market or share) the following counts"!! Here then we can talk about a "Collar" and here you can, if you wish, leg in and out how ever you like AND understand what you are doing. This kind of "Option Strategy" you usually let expire. (https://www.fidelity.com/learning-center/investment-products/options/options-strategy-guide/collar) In case you follow the idea just to mount or add more postions/legs to your existing one, then you best stay with the same produkt. Here I point again in the direction of "Margins". You really should take your time and read in the following links. There you will find a lot of very precise answers to your questions. Not easy stuff, but absolut needed for a basic understanding for option trading on the level you want to do. Under the "Point to consider": 1. What is a naked call? Why selling a naked call is risky n expensive? 2. Why/how buy a put would define the risk based on the price? Is it bcz lower price lower risk? I have heard certain put option spread are more advantageous but still don't have the time to figure them out yet. - Naked Options Expose You to Risk: (https://www.investopedia.com/articles/optioninvestor/08/naked-options.asp) - Selling Naked Options (11:16): (https://optionstrategist.com/blog/2022/07/selling-naked-options-1116) - Margin requirement when selling naked calls: (https://support.tastyworks.com/support/solutions/articles/43000435195-naked-short-call) - Buying power requirement when buying an outright put: (https://support.tastyworks.com/support/solutions/articles/43000435373-long-put) - US Options Margin Requirements: (https://www.interactivebrokers.com/en/trading/margin-options.php) Thanks again! I await for your reply from the beautiful Swiss.. Sincerely, Ted

@moneyboy888

Answers are in blue. Take care. Symple

Symple 

@moneyboy888 Answers are in blue. Take care. Symple

Hi Symple,

Hope you had a wonderful weekend. Thanks so much for taking the time to write, explain n gather all these great info for me. You must be an advanced/seasoned trader? Options have always scared many people away. These options trading strategies are definitely way over my head right now but I will take the time to study them gradually. In fact, I'm simply day trading/scalping Spy options with a group of traders online together every morning during the market opening hours. Well, some times we'd trade stocks but not options on stocks...some probably do. It's quite fun to be with a group of traders on Zoom call n trade together. We are a private group.

Also want to ask you if the QQQ is a good index to day trade options, in your opinions? I just heard it only consists of the 1st 100 corporations of S&P500. I guess the liquidity n volume should be a bit better? Thank you.

Cheers,
T

Hi @moneyboy888

Thanks and yes I had a pleasant weekend. My background in option trading: I am a fully educated option strategist, both in pure Option hedge strategies and in Future options hedge strategies (Options and Futures used in the same strategy). As I am now retired, I do trades at this time only partially. Most simple ways are "Call credit spreads and put credit spreads". In active times we did sophisticated strategies like "Synthetic Condors", just to mention one of many ways. Stuff not recommended for traders with no education on this field and not with the right tools/software to handle this kind of strategies..

Any way: Regarding to your question. My answer is one in general: Go for high liquid markets (any) with good volume, clear and fast clearings and if lucky with big swings. Big swings means good volatility. This just my criteria and others may have other criteria.

Wish you a good start into the new week. Symple

Symple 

Hi @moneyboy888 Thanks and yes I had a pleasant weekend. My background in option trading: I am a fully educated option strategist, both in pure Option hedge strategies and in Future options hedge strategies (Options and Futures used in the same strategy). As I am now retired, I do trades at this time only partially. Most simple ways are "Call credit spreads and put credit spreads". In active times we did sophisticated strategies like "Synthetic Condors", just to mention one of many ways. Stuff not recommended for traders with no education on this field and not with the right tools/software to handle this kind of strategies.. Any way: Regarding to your question. My answer is one in general: Go for high liquid markets (any) with good volume, clear and fast clearings and if lucky with big swings. Big swings means good volatility. This just my criteria and others may have other criteria. Wish you a good start into the new week. Symple

Sali Symple,

Hope you are having a great week thus far! Is it pretty cold or even snowing in Zurich now? I guess option hedge strategies are about stock options? What options hedge can be used in futures/commodities ( I definitely heard about this before but no clear clues)? So, the strategies are the same, as you explain. From the way you write n explain to me, I can tell you are a well seasoned, experienced institutional trader. Also, it finally dawned on me while in trading this morning that my initial question "short the call n long the put" is not ideal, no wonder you told me in the beginning that no one traded that way. It doesn't make sense! Why doing the double work...

Yes, I did just recently hear about "Calls n Puts credit spreads" n they sound very interesting to me. However, the sophisticated "synthetic" condor is ever the first time I hear about. I do hear about Condors n Iron Condor that's all! Not the synthetic one... I'd not touch any those currently until I have full grasp of the concept.

On Spy options, the real swings occurred this afternoon but I was long out of the market since morning. Almost wanted to jump in again but was occupied with something else. Also, I don't like jump into a trade while the actions were already played out in the mid way.

Cheers,

Hi @moneyboy888

What is a "Synthetic Condor"? You can find answers on the intranet that will at least give you an idea of what it is, but not how it is actually done. Even I won't do that here, but I can tell you that it is an "Option/Futures Condor Hedge Strategy " with at least five legs and not the usual four legs. By the way, there are also "Synthetic Butterfly's", "Synthetic Credit Spreads", "Synthetic Back Spreads" and so on.

One book I can recommend about this topics, at least closest to it, but not in the last details is: "Option Trading: The hidden reality. Written by "Charles M. Cottle"

Does it make sense for you now, as you trade options the way you do today, to continue to deal with the topic? This much I can tell you: The time you have to spend to be really professionally present in this area is immense without a mentor and professional training. Furthermore, any professional mentor in the private sector will charge horrendous prices for this knowledge, and rightly so, because as I said, this information is not available in the public domain.

As I understand it, you are in a different field. Just my opinion, but I would say: Take your chances there and keep your hobby, as now in the trade as you are currently doing.

Have a nice day. Symple

Symple 

Hi @moneyboy888 What is a "Synthetic Condor"? You can find answers on the intranet that will at least give you an idea of what it is, but not how it is actually done. Even I won't do that here, but I can tell you that it is an "Option/Futures Condor Hedge Strategy " with at least five legs and not the usual four legs. By the way, there are also "Synthetic Butterfly's", "Synthetic Credit Spreads", "Synthetic Back Spreads" and so on. One book I can recommend about this topics, at least closest to it, but not in the last details is: "Option Trading: The hidden reality. Written by "Charles M. Cottle" Does it make sense for you now, as you trade options the way you do today, to continue to deal with the topic? This much I can tell you: The time you have to spend to be really professionally present in this area is immense without a mentor and professional training. Furthermore, any professional mentor in the private sector will charge horrendous prices for this knowledge, and rightly so, because as I said, this information is not available in the public domain. As I understand it, you are in a different field. Just my opinion, but I would say: Take your chances there and keep your hobby, as now in the trade as you are currently doing. Have a nice day. Symple

Howdy Symple,

Oh my! That many "synthetic" strategies? Options is definitely a different wild animal...lol. Thank you so much for the mentioning of the book for me to reference upon, the closet. I do understanding your saying it pays to have a real mentor or former professional trader.

Have a blessed day!
T

Hi Symple,

I'd like to add you as a contact and friend, is that ok? Maybe someday I will have you mentor me on Options when the time is right. Thank you.

Cheers,
T