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Strategies & Market Trends : Jim's Nasdaq100 Special as a basket.
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To: stockycd who wrote (1306)10/11/1999 5:30:00 PM
From: OX  Read Replies (1) of 2103
 
Hi Chris,

In general that can be a good strategy, but usually works better going long w/ calls than short w/ puts (due to put/call parity issues). I went looking for high QQQ strikes. 140 was tops that I found (didn't look too hard). So I ran some numbers and the delta on Jan 140 Puts are a mere .609. Not good leverage for paying out $15 (4 in tv). In one week you'd lose .25 if nothing else but time changed.

In my view... anyone please feel free to correct me... if you're going to go short anyway, you might consider a synthetic short instead (provided you can write naked calls as Jim pointed out). It won't work well (due to commissions and spread) if you're looking to scalp 1/4 pt or so, but there are lots of other advantages:

On dividend paying stocks, a synthetic short position isn't obligated to pay the div. Shorts are.

You can establish a synthetic short postion for nearly 0 dollars. You have to maintain collateral backing, but you don't pay margin as in the case of shorting.

I ran the numbers for a synthetic short using Nov 129's... you get 5/8 credit and you are truely 1:1 on ups and downs, all the way down to expiration day.
(Actually I'm surprised to see this is 1:1 exactly, usually there's some 'cost penalty' of 1/4-ish.)

So if you're willing to short in the first place, the profit/loss and risk graphs are identical... The one advantage of shorting is that you can hold your short forever... in the case of a synthetic short, you'll want to go farther out if you need this coverage, but at least it won't cost you in margin debt.

just my thots.
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