Synthetic Stocks Using Options Equality (Parity) | Trade Options Like a DPM Webinars with The Admiral

I'm going to talk about now something that has always been very dear to my heart, when I first trading, and what that is I call them the equalities of trading.

As a trader, you stand in the pit. When you're in the pit, in the old days you didn't have screens, you didn't have technology, you didn't have computers that were giving you values. You had two ways of doing it. One, you had theoretical sheets that you printed up in the morning that I would prepare two hours before the opening. I'd break down my position to know exactly whether I was long or short premium. I would then look at what was left as far as what will happen with the movement of my position with the movement of stock. But what I had to understand when I broke down my positions was equalities.

So when I went down to the pit, I would look at the screen. I'd see all the calls. I'd see all the puts, and I'd see the underlying stock. Well, what that told me was that if I looked at the equalities, which is an example long call and short put, that's equal to long stock. I could [inaudible 1:10] those option values.

What I was basically creating was synthetic stock, synthetic long or short stock. I was creating a long call, short call, long put, short put. So when I looked at all these different options, basically what was my goal in the trading pit was to [arb] these synthetic [inaudible 1:29] many times in a given day. So that meant if I could do some strategy known as reversals and conversions and I did that to lock up an [arb], I would do that as many times as possible. Those opportunities become available.

In the old days of trading, in the early '80s and mid '80s, the opportunities to do those strategies was significant. Reversals to conversions that you could value out, which I will show you how to value your reversal and conversion, which basically is a function of time and interest rate, you could put on a reversal that might be worth a dime for a dollar credit. That's a significant profit in the '80s when puts and call were very new to the public and to the trading community.

We will go through different types of strategies like that. I'll be able to share with you what went on then, what I understand to evolve, because I was part of that evolution with the transition to technology, and then talking about where the markets are today and what the opportunities that are available today.

What you'll find is that when you become educated and knowledgeable with these strategies, the opportunities that will be available to you will be made by some of the technical analysis that [inaudible 2:37] makes available to you on a daily basis. You combine those two and I believe you have the opportunity to succeed on a daily basis.

Details

Who better to learn options trading from than one of the biggest and best traders to have ever traded on the CBOE floor? The Admiral is a 27-yr veteran of CBOE as with 5 years as a major DPM with a $800 Mil trading book. DPM stands for Designated Primary Market Maker.

Trade Options with The Admiral: HFT Stocks & Options

In this webinar series, The Admiral will start off by going over the basics. During this first webinar, The Admiral touched on topics such as the volatility component of options, options and stock equalities, and synthetics.

ABOUT "THE ADMIRAL"

The featured speaker, whom we affectionately call "The Admiral," was a Designated Primary Market Maker (DPM) on the floor of the CBOE for five years. Although we're not using his real name (so don't ask!) suffice it to say that we consider him to be one of the most knowledgeable option traders on the planet. As a floor trader in the '80s and '90s he did the opening options rotation for 5-25 stocks the old-fashioned open outcry way—meaning he opened each option strike price for each of these stocks within the first 30 minutes of trading, both calls and puts.

That meant he had to price more than 500 option strikes, plus as a market maker he traded and kept the markets current. As a DPM, technology brought forth auto-quoting of option series, but pricing of those quotes remained his responsibility. Trading 1 million shares of stocks and 50,000 options contracts was a normal day for him. In 27 years at CBOE, he has traded through the crash of '87, the smaller crash of '90 and the tech bubble in 2000. He has traded three-digit volatility and seen every possible market environment imaginable. So, if you're going to learn options, it might as well be from the very best.

PRESENTED BY: HAMZEI ANALYTICS

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Market Merchandise: Stock Index Futures Options (aka Equity Index Futures Options), Stock Options, Options, Stock,
Styles: Options Trading, Trading, Active Investing, Investing, Position Trading,
Strategies: Volatility Arbitrage,
Skills: Portfolio Management,

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