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Strategies & Market Trends : DAYTRADING Fundamentals
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To: LPS5 who wrote (9315)6/30/2000 11:26:30 PM
From: OZ  Read Replies (2) of 18137
 
FORWARD CONVERSIONS

We paid a firm to take care of bulleting for us via our clearing firm so that we wouldn't have to know that sort of thing

I feel the same way and have avoided the subject here thus far. Actually a Forward Conversion is different than a traditional bullet (married put). I am not sure that I understand the regulatory basis behind them. But I do now they are different. They do in fact allow people that are not necessarily registerd to get short on a downtick.

It is created by accumulating a Long Put, a Short Call of the same strike and a Long Position in the underlying equity.

They are very expensive to maintain because of the equity needed to maintain the open stock positions. They are often called "boxes" or "hedges". To get short you sell the ADDITIONAL shares of the underlying stock up to the amount boxed while maintaining the hedge intact. I know many scalpers that maintain from 10 to 40 of them and scalp the short and long side all day long. As you can imagine, 40 boxes of 1000 shares a piece is not cheap. The short call does offset the cost of building the hedge.

As a registerded rep. I will now do the more coventional married put method. This was one of the main reasons I decided to trade as a licensed rep..

OZ
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