Tip, A butterfly, with a stock at $50, might be long one call at $45, short two at $50 and long one at $55. Or, it could be with puts.
I don't do straight reverse conversions, as that is a money market game. I do spread reverse conversions. One of the more successful was short IBM at $134 1/2, short the Oct 135 puts at 7 points, long the Oct 140 calls at 4 points. The stock went down to $124 where I removed it. I sold the call at 1 3/8, bought back the stock at 124 and bought back the put at 12 1/4. So, I lost 2 3/8 on the call, lost 5 1/4 on the short puts, made 11 points on the stock and earned nearly two months interest money market interest on the cash credit on the options and 75 pct. of money market on the short cash. A loser would have had the dog run to $140 and I would have made all the put premium, lost 5 points on the short stock and lost 4 points on the call, while earning the interest. Net, a loss of a little under $2. I legged into that one.
MB |
