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Technology Stocks : 3Com Corporation (COMS)

COMS 0.00160

0.0%

Jan 16 9:30 AM EST

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To: Chris Anderson who wrote (10739)	11/23/1997 4:48:00 PM
From: Lost in New York	Read Replies (2) of 45548

I understand puts and I understand "naked" only as it relates to calls, so what is a "synthetic naked put"??? It basically behaves the same as a naked put but is implemented with equity and calls. You can have other "synthetic" things too. For example you can make synthetic stock by going long a call and short a put. Using COMS as an example you can buy 100 shares for $3,500 today. Alternatively you could buy a Jan 1999 35 call for $938 and short a Jan 1999 35 put for $713 for a net debit of $215. Guess what, it would take about $215 to borrow the $3500 at the "risk free" T-bill rate of 5.25% for 14 months. So the synthetic stock has the same carrying costs as regular stock except you get to "borrow" at a better interest rate. The price behaves the same also. For each $1 increase in the stock, the price of the stock obviously goes up a buck, but so do the options. The call has a delta of $0.65 meaning it will go up 65 cents for each dollar movement in the stock and the put has a delta for about -$0.35 or plus 35 cents to you since you're short the put. So whichever way you go there are many similarities between the stock and synthetic stock. The are differences too. They affect margin differently and you don't get voting rights with the options. Voting rights brings a question to my mind. I've got COMS in my margin account. I can vote this stock. My broker lends these shares to Craig who shorts them. Glenn buys the shares from Craig and can also vote them, neither he nor his brokerage knows they're the result of a short sale. Those shares are being voted twice??? Craig can't cast negative votes to offset one of the votes. I really can't figure this on out. Dave Option quotes: cboe.pcquote.com Option calculator (for Delta calculation): cboe.com (COMS volatility is about 61.5%)

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