Nate,
That's my understanding of how it works, yes. Of course, on the NYSE there is no bid/ask for a stock. I would say that trying to buy the stock at ask but sell the call at ask might make the buy-write less likely to execute than buying the stock near ask and selling the option near bid. Using your numbers, a net of 48 1/2 would be more likely to execute than 48 1/8. The latter net would force the broker to leg into the position, something he may not want to do any more than you do, thus causing him to maybe not execute it. If he does go for it, he could use one of those scenarios you mention, depending on what's available for him to shave sixteenths on: the spread on the option or the spread on the stock, or both, or movement on one or both (something he might have be able to anticipate or manipulate, with his connections), some combination of the above, etc. My guess is that you wouldn't do much better than a net of 48 3/8s in the real world.
Brokers might be willing to give away or risk more, but they'd likely charge a higher commission. I don't see them giving away half their spread for nothing.
Cheers, Tuck |
