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Strategies & Market Trends : Roger's 1998 Short Picks
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To: Michael Berkel who wrote (81)1/7/1998 8:11:00 PM
From: Fernando Saldanha   of 18691
 
Michael, you can avoid the "timing" issues with options by creating synthetic short positions. If you buy a put and sell a call with the same strike price (and expiration date) you create a synthetic forward (to the expiration date) short position in the stock. The position has no "convexity" and no time decay (you do not win or lose with the passage of time, if the stock price does not move).

Your P&L in such a position should be approximately equal to that of a short position in the stock, with one advantage, however. If you short a stock the broker does not pay you interest on the cash you have received (except if you are an institutional investor or if you are "big"). When you do the synthetic short you do get paid (although this is not obvious).

Best regards.
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