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4Q, I think you meant to direct your comments to MTE. In any case, I don't know of any case where you pay interest to short stock even if your adjusted cash balance is less than the "negative value of your short stock". Don

MTE, One minor disagreement, most brokers pay little or no interest on the proceeds from short stock. They pay on the proceeds from short options, but not short stock. At least that is my experience. Don

Perhaps my term "factor in" implies more complication than I intended. Anyway I know that my cash earns almost 5%, so any potential profit on any position must be higher or I'm not gambling wisely. Don

"Cost of carry" is the lost interest your cash might otherwise be earning. For example, when your position includes stock you are losing interest on the cash used to buy that stock. If you compare the P/L graph of stock to the synthetic equivalent of stock (long call, short put) the P/L of the...

One thought: Your option modeling program may not factor in the cost of carry thereby making the risk graphs of synthetic equivalents look different. Although I don't think they should look dramatically different as your note implies. Don

True, but a Call is more expensive than a Put because it contains the cost of carry. So when you have a short call it offsets the cost of carrying the stock. However, when you have a long call you are paying the cost of carry, but there is no offset. Therefore a reverse collar incurs a...

Although you have no capital outlay the cost of your long call has a "cost to carry" component so you are in effect paying interest. Because you do not earn interest on your short proceeds to offset this cost you are in effect losing about 5%. Contrast this with a normal collar where the cost...

In my mind the reverse collar is more expensive because most brokers do not pay interest on the short proceeds from the stock. However, you are "paying interest" because carrying cost is built into the price of the long call. Hence a net negative compared to regular collars where the...

Well in my book 5.5% is better than 5.1%. Also, I think that IB interest on cash is only 4.8%. So if you need a temporary place to park some money 5.5% ain't too shabby. Don

The EFP implied rates don't seem right to me. I think many times IB has dividends included in their calculations that don't exist in the futures time frame. Although even when there are no dividends the IB implied interest calculation looks wrong. Anybody have any insight? Don

Pardon me for jumping in, but it's not the seventy bucks. Often it's the time you have to invest to install, configure and figure out how to work it that is important. It's pretty annoying to spend hours and then find out the product doesn't do what you want. Don

Don't feel bad when I first read your post I couldn't see the mistake either. However, whenever I see a trade that looks that bad I always say "is there a way to profit by taking the other side". Generally if there is a mistake you'll find it trying to model the other side of the trade. Don

It's not a wash. Let's assume you sold the original $130 puts for 50 cents. If you let them expire the profit is 50 cents (you keep the credit). Now lets take the roll up to the $140 puts. The profit is: credit of 50 cents(orig $130 sale) + debit .50 (close $130) + credit $1 (short $140 put)=...

No, if I understand you correctly your thinking is wrong. If the stock closes above the new, higher put price your profit would be $1. Before the adjustment your profit would be 50 cents. Remember that the original credit you received included the 50 cents still remaining on the original...

I am not sure that you would suffer "no trading ability for over a year". I think most brokers would consider stock a marginable security and, for example, you could sell naked contracts using the un-margined portion of the CC stock as "collateral". So you can still get some leverage, but just...

I don't know of any brokers who pay interest on short stock. Although I think IB does pay some interest on the amount of the short balance over a certain threshold (I think over $100k). I have heard that shorting futures is one solution to overcome this limitation. However, I am not sure if...

I beg to differ a little bit. Many brokers do not pay decent interest on cash. Therefore many times a covered call is preferable to a NP. For example, IB does not pay interest on the first $10k of cash. Clearly if your account is small like this a CC is better. Another example, OE only...

The term "margin" seems to have many meanings so I'll just avoid using it for now. For IRA accounts basically you must have enough cash to cover the risk of any spread you play. For example, to have a $5 wide credit call spread you must have $500 cash for each spread. That is the rough...

Yes, OptionsXpress, and Thinkorswim to name two. There are probably others. Don

The reason it's important is because many people think that buying stocks is investing. Or worse yet, they think playing with options is investing. If the average schmuck knew it was gambling they might make better choices. Investing implies some useful application of your money to produce...