Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Option Spreads, Credit my Debit -- Ignore unavailable to you. Want to Upgrade?

To: Steve_GTS who wrote (1842)	12/5/2000 11:54:25 AM
From: KFE	Read Replies (1) \| Respond to of 2317

Steve, I understand that they are merging with an other company This could explain the apparently free profitable trade. A personal story might be in order here. When I was a young and hot-shot options desk trader I saw what appeared to be a riskless arbitrage similar to the one you mentioned and I put on a large position thinking that I was pretty smart and had found the perfect trade. I was very excited when I had no trouble getting fills at my prices. Then I learned the hard way the meaning of the expression ...if it seems too good to be true... The underlying stock was involved in a merger and the terms of the options had been adjusted. I had unknowingly locked myself into a position where I had a guaranteed loss and possibly a catastrophic loss if assigned on the short side. It took a lot of work and favors by the head trader to get me out without losing my shirt. This taught me to always research the terms of options on stocks involved in mergers or similar events that can change the terms or cause certain strikes to have different terms. I urge you not to put on this trade until you have fully researched the terms of the options involved. There are many reasons why options can appear mispriced when such things as a merger are involved. There can be assignment and exercise problems, different terms on strikes, etc. If the quotes are real and you can get the credits mentioned then rest assured that answer is in the terms or exercise conditions of the options. The option markets have become too efficient to allow the trade the way you think it is. Regards, Ken