<..making it a syndicated short position with no additional risk
between 29 3/8 and 35...>
*Roughly* agreed Brian, but with the clarification that the 5/8 spread
<$31,250> is an additional *absolute* cost/risk over a "real" short
(see table below)
However, as % of underlying collateral, the risk leveraged in the
synthetic short - as with ALL options - is much greater than with a
straight short.
Also, if the strategy is married to an equivalent long position (as
NW suggested) it's a riskless conversion box - an arbitrage (mainly
used by MM's due to cost/benefit), or else a simple locking in of
profit or limiting of loss with an otherwise unsellable stock (as in
shorting against the box).
===========
[cost/reward table for 50,000 at 30 strike]
compare
_____________________|_____________________
| |
| only only |
price short object short calls buy puts synthetic short
45 <$750K> <$475K> <$306,250> <$781,250>
40 <$500K> <$225K> <$306,250> <$531,250>
35 <$250K> +$25K <$306,250> <$281,250>
30 -0- +$275K <$306,250> <$31,250>
25 +$250K +$275K <$56,250> +$218,750
==================
BTW, MSFT loses second appeal on Sun Java case - and they have 90 days
to comply or have Windows98 removed from market. They don't seem to
be appealing any further. In addition, this will likely bolster
Justice's case. [May the Force be with you] |
