Sounds like The OptionPlayer's Trivet logo. Succinct.
Okay, so that is good axiom explaining the rudiments of options. What if you own the stock you think is going down? Sell out and buy puts or...
For my own diversion, I was toying with the three things all those really smart people were able to drill into my coconut in Denver, to see what I can come up with. (One of the other things I learned is don't drink too much wine at high altitudes. Poet is an animal.)
I was inverting the synthetic long to see if I could come up with a synthetic short, having no money outlay. Because Black Scholes formula is Market and Stock Neutral, assuming equal likelihood of a stock moving up and down, ATM calls and PUTS theoretically cost about the same. (Likewise if they are both an equal amount OTM.)
Synthetic Long:
XYZ @ at 110:
Buy July 110 calls 18 5/8
Sell July 110 puts 17 3/4
Invert that for a "Synthetic short:"
Sell July 110 calls 18 5/8
Buy July 110 puts 17 3/4
In this scenario, you have to either own the stock or selling an uncovered call. Or you could be doing it on LEAPS. If XYZ is below 110 at expiration, the calls expire worthless. If it declines more your free put has value.
Danger: Stock goes up, you either have to buy back your call or it gets called away without the buffer of the $$ from having sold the call, cause you bought puts with it you dummy!
Just a mental exercise. What am I seing wrong?
joelle |
