Roger's 1997 Short Picks Message Board

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Strategies & Market Trends : Roger's 1997 Short Picks

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To: Brad Davies who wrote (7616)	11/29/1997 1:05:00 PM
From: CalculatedRisk	Read Replies (3) of 9285

Ron, for a "synthetic" short you buy the put AND write the call. Here is how this works (using AMZN as an example): Current Quotes: AMZN 49 1/2 - 49 5/8 ZQNGJ (July 50 Calls) 11 1/2 - 11 7/8 ZQNSJ (July 50 Puts) 12 1/4 - 12 5/8 Synthetic Short: Buy Put ZQNSJ: $1262.50 per contract Sell Call ZQNGJ $1150.00 per contract. Out of pocket = $112.50 plus commissions per contract. (NOTE: You could use the 45's and put a few bucks in your pocket.) This position moves up and down in step with the stock. If the stock moves to 40, the synthetic short gains about $1000 per contract (same as short 100 shares) and if it moves to 60, you lose $1000! The downsides are: 1) No cash in your pocket (I use Schwab500 and they pay me interest!) 2) Options tend to have wide bid / ask spreads. To clear the position, you eat the spread. 3) Time is an issue. That is why you use the farthest out options available for a synthetic short. NOTE: This is a different position then writing "naked calls". Regards, Bill

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