This particular trade is not gambling, you just pocket money
for nothing, like a CD that pays 20% a month and matures at
options expiration. It's a pure and simple options arbitrage
trade, perhaps, the simplest one. You pocket the difference
between put and call time premium that are supposed to
be equal but are not for some weird reason, risk free, and
that difference goes right into your pocket at expiration.
It's stunning to see such things. You just can't lose on
this, impossible. The position is equivalent to cash that pays
you at expiration, gradually, as that time approaches. -g-
There are 2 ways to buy a put,
One is to buy a put.
The other is to short the stock and buy a call, which is
called a synthetic put.
If the time premium for these 2 ways to buy a put is
remarkably different, as it is in GM (the synthetic puts
are virtually free at this point, while the puts are very
expensive), you just short a put
and buy a synthetic put, create a market neutral position
of long and short a put, and pocket the difference in time
premium until expiration <G> |
