Cool, Ed. Thanks. I was just messin' with ideas. Didn't know McMillan covers it. I must be catching on. Just snagged McMilan to read up.
I was gonna ask, next, "Why not do either the SL or the SS with strikes equidistant from current stock price", but I see it's covered in the same chapter, and I pretty much had that nailed too. Something must be sinking in.
Been trying to understand why, when Black Scholes is based on volatility, risk-free interest etc.., do ATM puts and calls, or puts and calls equidistant from underlying price not cost the same. I'm thinking it must be something about time or interest, because the difference is huge in LEAPS. So I read that chapter in mcMillan straight-through too, doing every example. Yeah right. The heck I did. That chapter is sadistic, and I even like math.
So all my why's aside, it's cool that in the synthetic short, that works in one's favor. The calls you sell are more costly than the puts you buy.
I appreciate the feedback. I'm just having fun with numbers, trying to learn concepts here. Can anyone tell me why the bid ask spread on RMBS options is $3-4? And if you can explain that other thing about the difference in ATM put and call prices I will be forever thankful.
joelle |
