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Ol’ Wisco | That is considered a synthetic long put. If you bought the ATM call and sold a futures you would be effectively short -.5 delta the same as an ATM put. The thing to remember is if you are doing this against insured bushels, you already effectively own the ATM call through the form of insurance wherever the insurance price is struck (yes you don’t “own” the call bc you can’t sell it to the open market but you do own the right to own those bushels at the insurance price if they are not produced) My guess is you want to have long exposure in the event of a market rally against your short futures. The thing is your adding length to your porfolio that is likely already long if you are not completely delta flat. If you want to recapture that option premium you have to trade volatility. As soon as your delta changes to +\- versus 0 market exposure you are now directionally trading. Only through outright volatility trading(in a frictionless market) will you be able to recapture the option premium.
Does that make sense? | |
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Reaper- looking for a little insight
