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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Haim R. Branisteanu who wrote (39514)10/12/2003 11:01:56 PM
From: que seria  Read Replies (1) of 74559
 
Haim: I have a slightly different take on synthetics.
You asked about synthetics puts and calls, and got answers about those. More interesting are synthetic long or short positions in the stock, accomplished via options. Those involve selling puts and buying calls (synthetic long), or buying puts and selling calls (synthetic short). The option positions are thus "real," but in combination they make a "synthetic" long or short stock position.

I've used this technique to my benefit (synthetic longs on gold stocks) and detriment (synthetic shorts on tech stocks that powered upward). I've sworn off synthetic shorts for now, but if gold goes down hard I'll be loading up on synthetic longs. The object is to eliminate or reduce the time deterioration of the options, which usually makes them bad bets. (If you have a zero premium synthetic trade--sometimes called a collar--the premium received offsets the premium paid unless the trade goes against you past the strike price on your short option side of the collar).

I usually go out of the money for safety, and far out in time, essentially betting on a big rise or fall. A key to my long collars is that I only do them when I'd buy the stock at the price at which I've sold a put on it. Not many!
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