How to Build your Own Synthetic Annuity

Beginners' understanding of options is mostly from out-of-the-money option short position can receive options, even if the stock falls to striking price, they will think that it is lower than the market price at the time of trading and better than, or buy at an Option price.

If you've had experience with options before, but just stay on one or two of the strategies mentioned above, the following book may make you yell. This book describes what it means to risk and reward, and what it means to enhance the reader's knowledge in this context:

1. Volatility
The volatility of the stock 

2 Delta
The delta of the stock is 1, means that the stock every rise of one dollar, the stock rose 1, if the A stock period Delta is 0.6, on behalf of A stock per liter of one dollar, this period price is up 0.6 dollar, if Delta is -0.2, then the stock rose 1 dollar, option price on the option price Down 0.2 dollar, if your portfolio has two A-share options, one is recognition, Delta is -0.4, the other is subscription, Delta is 0.6, the positive shares of 1 dollar per litre, the combination will rise 0.2 dollar, the combination of Delta is 0.2 dollar.

3 Gamma
Positive stock rose one dollar, the latest Delta of options and the original comparison of the change is gamma value, Delta value will be affected by different factors among the positive stock price, very outside the option, Gamma in the positive stock price changes are still relatively small, positive stock price to the closer to the exercise price of the option, the larger the option, so Delta hedging portfolio risk is not only the current price level, but also imagine the positive stock fell significantly when Delta.

4. Theta
The exercise price is the largest amount of options when the positive share price is available, the theta is also the largest, if the value of theta is -1.2, the value of the representative option falls by 1.2 yuan per day, if the option expires 28 days ago, in the positive share price day, the value of the consideration option falls 1.2x28 days, if there is 100 shares of options on the x100, but the speed and time of the fall of Theta is uneven, if the near maturity date, the faster the fall, if you are an option long position, Theta is your daily loss, but if you are short, then negative, Theta is positive 1.8, is your income.


5. Reduce risk while increasing revenue with the Port Collar strategy
Many investors will always think that a much lower off-price option will be safer, but once the price, delta still becomes 1, and the positive share price together, the risk has not decreased.

This port Collar strategy is that the short position At the money to the purchase option, while the long position out of the money outside the put option (written is holding a positive stock plus at-atm and buy OTM, but because this is the same as holding cash and at-atM buyOTM, so I use the latter to say simple to make a small sum of money to make a combination of senior annuities and reduce risk.


The author finds the reasons given by the book very convincing, because:
1. ATM Theta is the highest, while OTM Theta is lower, earns the highest income, and pays the cheapest insurance;
2. Once ATM's Delta becomes deep-on Deeply in the money, the original option Theta will fall sharply, but the other delta that turned out to be OTM options will rise because it is almost ATM options, because it is the demo Delta, and the positive stock fall towards the opposite, playadel in reducing the risk and reduce the amount of gamma change in the portfolio, without the cannabis slug:
3. The synthetic portfolio has a significant reduction in the overall principal requirement for the bulk pick-up due to the long-position OTM relationship, so the income ratio of short-position options will increase relative to the capital, and the rate of return will also increase.

The book suggests that the same proportion of options can be used to simultaneously sputter ITM, ATM, and minor OTM, using the total amount of these options funds 20%-30% to use as an OTM long position to reduce the gamma in the event of a sharp fall