Buying Calls - selling puts(same difference?)

mik1973

Well-known member
290 13
If buying a call and selling a put are positions taken with the expectation (hope) that a share or index will rise-then what is the most preferred strategy (used from betting with a SB).
Plain English (Idiot talk) response would be appreciated.
Thx in advance
Mick
 

Robertral

Well-known member
446 4
options are multi dimensional so simply speculatiing on direction is bad news......you have to rember the time frame and IV etc..

If you buy a call and the underyling goes up you will get an increasse in the value of the call

If the imp vol of an option goes down you will loose money on your call

A rise in underlying (stock) is negativly correlated with imp vol...

Thus any speculative direction might lead to a profit or loss, depending on what market you trade...you get me??? just take the inverse of the above for a put....

I;ve probably forgotten something so please other members fill in...I don;t trade specualtivly so please step in....
 

TWI

Senior member
2,536 254
The difference is in the risk you are taking.
If you buy a call the risk you are taking is equal to the premium you pay.
If you write a put then you have potential to lose all the way to underlying price zero.
This is certainly worth considering.
Despite that, one of my favourite trades is to write out-the-
money puts on historically cheap commodities or markets that have just suffered a severe sell-off.
Please note with exception of above I only use options as a tool to manage my underlying position so all this talk of delta neutral, positive gamma etc. really doesn't do it for me.
 

mik1973

Well-known member
290 13
Thanx for your responses- i've read a couple of books on options but still don't feel i'm ready to take the plunge. I guess the main attraction is that you know the total down side risk from the outset. Liffe has an interesting site but i think i'll sit this one out for the moment.
Cheers
Mick
 

ubi

Newbie
9 0
twalker has the it pretty well summed up about the risk involved in buying calls and selling puts.

Options are great to speculate on direction. There is massive leverage on out-of-the money options. An out-of-the call that expires in-the-money will yield returns much higher than a simple long position in the underlying. If you're just going to buy a call and then leave it to expiry, there is no need to worry about volatility. So go ahead and speculate on direction, as long as you know your maximum loss!!

A rise in underlying (stock) is NOT always negativly correlated with imp vol.

Don't start confusing yourself with volality or implied vol (IV), if you're trading simple outright calls and puts, without delta hedging.
 

ubi

Newbie
9 0
Robertral said:


You might make a bit but the IV will kill you.....

Who cares about IV, when a 25 delta calls turns into an over 50 delta? You'll be laughing all the way to the bank with your leverage.

Additonally, who cares about vol if you're trading a front-mth option, with little vega and loads of gamma?

Go ahead and buy calls!!!
 

TheBramble

Legendary member
8,394 1,170
Robertral said:


You might make a bit but the IV will kill you.....

RR - when I simply suggested a 'Buy', I was responding to Mick's initial post in which he asked what was the equivalent trade when using an SB for buying calls/selling puts.

Personally, I'd only ever consider selling puts/calls - never buying .
 

doyler

Newbie
6 0
This is my first post, a bit about myself, i'm considering trading options, read a number of books, but still didn't feel comfortable
so i decided to go on a two day options workshop at Liffe which I would recommend to anyone considering trading options for the first time. The guys who run the cse are former liffe traders, very experiened.


______________________________
doyler
 
 
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