Article Interview with Index Option Credit Spread Trader - Howard Cohodas

Any off topic posts will be deleted from this thread. Comments relating to the article only will remain and if people want to discuss other issues then start a new thread as this is not the place to discuss them.


Paul
 
i have question about this....

in the article it says "look at the probability of touching of the short option" and then if you can make the spread for 5% of difference in strikes then its OK

but doesnt you ever look at the probability of touching of the option you go long with?
 
DashRiprock said:
i have question about this....

in the article it says "look at the probability of touching of the short option" and then if you can make the spread for 5% of difference in strikes then its OK

but doesnt you ever look at the probability of touching of the option you go long with?
Click to expand...

In a credit spread, the option closest to the underlying instrument price is the one that is shorted. Therefore the short strike is the one that will have a higher Probability of Touching. Also the shorted option is the one that incurs an obligation on the seller's part.

The short strike has the obligation.
The short strike will be the first encountered by the underlying.
The long strike is what caps you losses.
Thus PoT is most important with respect to the short strike.
 
yeah i know all that

but if you are long one option and short an other option you are making a relative value trade, from the greeks like delta or gamma or skew

like you need to compare price of one option and its chance of touching with the other option and its chance of touching to know if to go long or short the difference


:/
 
DashRiprock said:
yeah i know all that

but if you are long one option and short an other option you are making a relative value trade, from the greeks like delta or gamma or skew

like you need to compare price of one option and its chance of touching with the other option and its chance of touching to know if to go long or short the difference


:/
Click to expand...

Let's take this to a separate thread. Start it by citing a specific trade from currently available options that illustrates your concerns and then I can respond with specifics rather than generalities that you already know.
 
hi :)

i dont think you got my question cos it doesnt need real option prices or probabilities to explain my answer.

so what i mean is like how do you say wether the options are OK for selling for credit cos it might be better to buy them sometimes.

cos there wont be any difference in probability of touching verses price for the 2 options that woud be arbing and i dont think you can do that if your not a bank.

:confused:
 
DashRiprock said:
hi :)

i dont think you got my question cos it doesnt need real option prices or probabilities to explain my answer.

so what i mean is like how do you say wether the options are OK for selling for credit cos it might be better to buy them sometimes.

cos there wont be any difference in probability of touching verses price for the 2 options that woud be arbing and i dont think you can do that if your not a bank.

:confused:
Click to expand...

This is part of the problem. It is fairly clear (and always was) that Howard barely even understands options. This has been pointed out by several long-standing members who do. Why on earth was Howard given the "Interview with..." thing?
 
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