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Technology Stocks : America On-Line: will it survive ...?
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To: Jason Cogan who wrote (9063)3/26/1998 7:00:00 PM
From: Steve Robinett  Read Replies (3) of 13594
 
Jason, One small clarification. Writing calls is not by itself a synthetic short position. A synthetic short position is created by writing a call AND buying a put at the same strike price. This creates a position that moves point for point exactly like a short position. (BTW, simply buying a put long is synthetically the same as shorting the stock and using a protective call). The only difference from a true short position is the bid/ask spread on the options; on a down move you make exactly the same amount of money as a short position but less the bid-ask on both options. Synthetic positions are very interesting on high-priced stocks. They let you short the stock or buy it long (write a put and buy a call) without puttting up a zillion dollars. Of course options expire, which true short positions do not, so it's usually better to buy as much time as possible. LEAP synthetic positions are quite interesting.
Best,
Steve
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