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Intro To Synthetic Options - Hedging and CC Opportunities

2021.06.21 11:41 black_bear_666 Intro To Synthetic Options - Hedging and CC Opportunities

Intro To Synthetic Options - Hedging and CC Opportunities TL;DR: Nope, you need to read this, DO NOT use this strategy UNLESS you have read this AND done your own DD.

With the number of people wheeling I thought I might write a post of Synthetic options and how you can use them.
What are they?
Synthetics mimic the movement of a different position using a combination of options. i.e. how can you mimic the movement of 100 shares of long stock or 100 shares of short stock?
Long Synthetic - Bullish/ Mimic 100 shares of LONG Stock, UNAFFECTED by Greeks
  • Buy ATM (can also be ITM or OTM, but it changes several factors, best to stick with ATM for now) Call option
  • SELL the corresponding Put option, of the same strike AND expiration
  • E.g. Buy the SLV $24 Strike Call (Jan 2023 Expiration) = $4.18 Debit
  • Sell the SLV $24 Strike Put (Jan 2023 Expiration) = $4.03 Credit
  • Net cost = Strike Price Plus Debit Paid
  • (Image includes commission and others, so the net figure is different)

https://preview.redd.it/89s9vr3agl671.png?width=656&format=png&auto=webp&s=8879feb6b9413b713fcc0306a0f04e2b422e60e3
Short Synthetic - Bearish/ Mimic 100 shares of SHORT Stock, UNAFFECTED by Greeks
  • Buy ATM Put option
  • SELL the corresponding Call option, of the same strike AND expiration
  • E.g. Buy the SLV $24 Strike Put (Jan 2023 Expiration) = $4.03 Debit
  • Sell the SLV $24 Strike Call (Jan 2023 Expiration) = $4.18 Credit
  • Net cost = Strike Price Minus Credit Received (or plus debit paid if the case may be)

https://preview.redd.it/m3qi9k98hl671.png?width=654&format=png&auto=webp&s=cf211ab23481c1e3500db306a63c9595ad9adae1
Now, the obvious risk with a Short Synthetic is the sold call leg, thus the P/L chart showing infinite potential loss.
The easiest way to mitigate this is by buying a LOWER Delta Call to cover yourself in the case of a surge higher. The expiration does not need to be the same as the Synthetic, I would instead buy the expiration that is far out enough that I am comfortable with (in this case Sep 17th 2021).

https://preview.redd.it/5cwug51lhl671.png?width=657&format=png&auto=webp&s=bac0e82a0e60f13916b06b86ed7ebc1a82540ee6
So Why Use Them?
  • The biggest strength of stock vs. options is the lack of theta decay AND the fixed delta positioning, the other big advantage is the fact that a Synthetic grants exposure to 100 shares of stock WITHOUT the upfront costs (you are still subject to the same P/L as if you HAD bought the shares, so keep this in mind), this can make the strategy a good way to make efficient use of capital.
  • In effect you are opening a 100 share position for next to nothing in opening costs, you will still be subject to the price fluctuations of the underlying (THIS DOES NOT MEAN YOU HAVE NO RISK... THIS MERELY MEANS THAT YOU DO NOT HAVE TO FRONT THE CASE FOR THE STOCK)

Synthetic Covered Calls
  • Remember that a Synthetic mimics 100 Shares of Stock (hence the 100 Delta).
  • This also allows one to sell CCs AGAINST their Synthetic stock position, whilst still retaining the protective put (lower delta than the synthetic), this gives a P/L chart like the one below.

https://preview.redd.it/i7l7szepil671.png?width=652&format=png&auto=webp&s=e651d24c8170f9f10ea39471cc464aa12a163a05
Below is the overall Greek positioning for the above P/L Chart
https://preview.redd.it/x4uyvggqil671.png?width=820&format=png&auto=webp&s=4efcc9b4abc1283a7145a1ad13395a8036514b61
As you can see, the position is as close to theta neutral as possible (it will obviously vary depending on the underlying).

Hedging a Stock Position With Synthetics
  • Assume for moment you sell a CSP against a stock.
  • Assume that the price falls through and you are now bagholding.
  • You now own 100 shares below your cost basis, you cannot really sell CCs (yes you can but most people on here will tend not to).
  • You can enter a Short Synthetic (-100 Deltas), this offsets your (+100 Deltas/ AKA the 100 shares of stock).
  • This makes you delta neutral, WITHOUT the theta drag of puts, keep in mind this will likely (brokerages vary) prevent you from selling CCs whilst the Synthetic is in place.
  • In effect you 'freeze' your position and prevent further loses.
  • This also makes it much easier to pivot to a net negative delta position (any puts you buy WILL make you net short that many deltas).
Hope some of you found this helpful, if you did, let me know, if it didn't also let me know.
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2021.06.21 11:41 wjaybez It's come to my attention that a good number of people aren't aware Rocky wrote a book about life at Steele's during Covid.

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2021.06.21 11:41 Redem10 The Chronicles of the War for Earth - Triumph

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2021.06.21 11:41 EnvoyExtraordinary Formel E: Pascal Wehrlein verliert Podiumsplatz in Mexiko nach nächster Strafe

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2021.06.21 11:41 georgixx How to set boundaries without sounding harsh?

How do I help my boyfriend?
I’m certain my boyfriend is depressed and has anxiety. It’s bad. But he lays his problems on me all day every day. Every single phone call is the same problems with no solutions, it’s negativity and complaints about how the world is against him and how no one understands. I try so so hard to be there because I know how difficult it is to be in that situation but if I say the wrong thing I get used as an emotional punch bag (not literally btw). It’s worth noting he smokes weed every day as a way to escape which does no favours.
I also probably aren’t as sympathetic as I could be a lot of the time either. I have a tendency to be in codependent relationships and have been a huge enabler in the past. I am trying to establish boundaries and have my own needs met.
He is seeing someone about it this week but how do I support him without the entire relationship becoming about forfeiting my needs and being consumed by his life and fixing him? How can I be there and not enable him by letting him do nothing to change his lifestyle and telling him everything is ok?
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2021.06.21 11:41 Mother_Ad4020 I hope my grandmother remembers…

That it was my birthday a few days ago. I know she always remembered it as I am her first grandchild.
I hope she remembers why I cut her off. I hope she remembers all the family members - her daughter, her son, her grandchildren - who have cut her off because she chose to support the man who abused me and my sisters instead of us.
I hope she knows what she has done. I know she chooses to spread rumours about me all over our hometown and I can never go back home because it, because I was the only one brave enough to go to the police. I know that she knows my uncle is still abusing children. He has been doing this for FIFTY YEARS and she knows it. My grandad knew it. They chose to do nothing as it would bring shame upon the family. Well, how shameful is it that none of your grandchildren and half your children will have nothing to do with you?
I hope my nieces can get out. I have reported him to the police, I have made a full report and testimony. I am sorry, my nieces, I have done all I can. Your mother is in denial and an addict, who was raped by him for several years and thinks it’s not a big deal anymore as she is so numbed. My heart goes out to her, but far more to you. It kills me to know he is likely still doing what he did to me, to you. I report him again every single year. I’ve given the police your names and his. I have called countless times. I’m so sorry I can’t do more.
This is my grandparents fault. My uncle began sexually abusing his sisters at age 6. No one did a thing.
I hope the next generation can break the cycle.
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2021.06.21 11:41 ErimASFGDASDAS Bu oyunu oynayav var mı? Oynayan olduysa da tavsiye eder misiniz?

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2021.06.21 11:41 R-Flex Reminder to report physics abuse

Reminder to report physics abuse Even if the physics abuse wasnt against you.
This guy intentionally pushed a teammate in the enemy's line of fire because he was mad.
Reported him.

If you encounter physics abuse such as intentionally pushing you can create a support ticket and they will receive a ban

Support Link

Reports & Appeals > Report a violation >Unsportsmanlike Conduct > Physics Abuse

https://preview.redd.it/a8ekrbe6kl671.png?width=967&format=png&auto=webp&s=c442c59837f7bbbfab620c2d9fed8f54137e4012
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2021.06.21 11:41 kassemcom الخمول يهدد حياتك.. نقطة الانطلاق للعديد من الأمراض

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2021.06.21 11:41 adamReddit26 Base Legend Vieira at CB

Is it good to use Vieira at CB? I have limited CB so I think I might to put him at CB.
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2021.06.21 11:41 ice_cube56 Average Malayalam Masala Padam starter pack.

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2021.06.21 11:41 Retardotto När man ä på landet

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2021.06.21 11:41 kassemcom مجلس الصناعات الدوائية يسعى لرفع أسعار بعض الأدوية مجدداً

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2021.06.21 11:41 PossiblyDumbMan Sus

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2021.06.21 11:41 allusernamesBtaken vacsin

ik hoef die kaulo vacsin niet van de roverheid en rute weet niet wat erin zit dus gaat ook niet me lijf in gespote worden.
wat is julie mening gaan julie hem wel nemen of nite?
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2021.06.21 11:41 Potato_palya Rolls place in South Bangalore?

Any good (veg) rolls in south bangalore? Doesn't necessarily have to be Kolkata Kati rolls or anything. Need some rolls, man! Hoping to find some near BSK area-ish.
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2021.06.21 11:41 DM7x Πάμε ομαδάρα!

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2021.06.21 11:41 kassemcom نيران صديقة تمنح البيرو الفوز على كولومبيا في كوبا أميركا

نيران صديقة تمنح البيرو الفوز على كولومبيا في كوبا أميركا submitted by kassemcom to Beiruttime [link] [comments]


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