Long call short stock = straddle? I'm trying my best to plow through Cottle's material, so my understanding of synthetics is somewhat limited at this point, but can you elaborate on this? Doesn't seem to fit the pnl diagram of a straddle when I plot it. My understanding is your're describing a synth put.
I think that's a great idea. Since I am forecasting vols, why don't I directly trade $VIX... ... Hopefully it has lower spreads...because I am doing 1 day trades...
long call+short stock is a long put - K, and 2 long calls+short stock is a straddle - K... Why don't directly buy straddle, then? You want to pay the additional transaction costs on stock?
Because it is easier to scalp the stock (i.e. adjust the deltas of the position using the stock) since it is more liquid and has less slippage.
The SPX is a single listed product on the CBOE in addition there is no true electronic access to the market. When you send an electronic order it lands on a broker box who then has to key it in the CBOE system, and represent it. The SPX is really an institutional product with much of the volume coming off the phones to the floor brokers where they can shop those orders both to the pit and to off floor liquidity guys. Lots of crossing of orders goes on.
I see. That's why option on QQQQ is better in terms of spread... How about the spread of trading VIX directly...?