Ascend Communications (ASND) Message Board

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Technology Stocks : Ascend Communications (ASND)

ASND 210.40

-1.0%

11:53 AM EST

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To: Jim Ray who wrote (60706)	4/9/1999 1:45:00 PM
From: JH	of 61433

Thread: the stock swap spread has widened to about 7.4 (from a recent low of 4.4 in late March. If one were to short both the 05LU70c and the 05ASND80p to capture the decay in option premium as the underlying share prices converge towards some price contained within the two strike prices, what would be the correct ratio of options to short? Would any arb experts on this thread care to comment? The assumptions are: 1) that 1.65 shares of LU will be converted for each share of ASND 2) that we are shorting 100 contracts of the 05ASND80p (a risk profile similar to going "long" 10,000 shares at $80, or $800,000 of underlying shares). How many contracts of the 05LU70c should be shorted against this position to make it "market neutral"? Guess that would depend on the deltas, gammas, and conversion ratios, but I can't quite seem to figure it out...

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