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

To: Dan Duchardt who wrote (2245)	2/6/2003 8:25:37 PM
From: the-phoenix	Read Replies (1) \| Respond to of 2317

One thing for sure is if I was on the other side of that spread with a debit of $980 for something that will be worth between $0 and $1000 in two years, I would have that hedged somehow. Interesting way to look at it. Somebody is on the other side (the specialist firms?), and it looks like a very bad trade from that perspective, unless there is more to it. This trade as a bull put spread seems too good to be true. And you know what they say about something that seems too good to be true. But I still haven't figured out how I'm going to get screwed on this. Can anyone else see where the potential pitfall might lie? TIA

To: Dan Duchardt who wrote (2245)	2/7/2003 10:01:36 AM
From: Ira Player	Read Replies (2) \| Respond to of 2317

Dan, This type of trade is unique to "American Options", with early exercise. "European" puts this DITM would be selling at a discount. The professionals would buy them and exercise immediately, keeping the spread as the toll for the trade... With interest rates this low, I don't see why anyone would try this, especially with so little open interest before the trade. It's an "Interest rate arbitrage" and there is no interest to speak of... Note the open interest on the Jan 05 55's today -- 46007. I'm not sure why the other side held any of them. Usually, open interest in DITM puts is in the hands of retail "investors", not the pro's. Ira