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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: RoseCampion who wrote (1624)9/12/1999 10:39:00 PM
From: KFE   of 2241
 
Rose,

Can anyone see any problem (legal or financial) with the above strategy? (Ignore for now the obvious risk that the stocks could stop moving in tandem and make _both_ positions losing ones.)

Shouldn't be a problem if you are using two different equities. IF one or more of the positions is not an equity...option,mutual fund,bond etc... then there is an offsetting position if you have a substantial diminution of risk of loss. If either position materially diminishes the risk of loss on the other position then the anti-straddle provisions will probably apply.

how would one best go about identifying two such equities based on an analysis of available market data? (N.B.: It's not enough for XXX and ZZZ to have similar or identical betas; they have to move similar percentages in similar time periods, either in exactly the same _or_ exactly the opposite directions, consistently.)

I would start with sectors where the companies tend to move in concert such as oil drillers. Go to a web site that lets you superimpose one companies chart over another (I can't remember the URL's off the top of my head) and list all the companies in that sector until you find what you want.

I used do what we called "tax spreads" with options for clients with large capital gains prior to the tax code changes. Gains could be postponed indefinitely.

Always nice to have to think of ways to reduce tax consequences on large gains.

Regards,

Ken



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