I don't understand this position. Why the synthetic instead of the natural?
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I don't understand this position. Why the synthetic instead of the natural?
Quote from cohenmichaela:
I don't understand this position. Why the synthetic instead of the natural?
the logic is, and it is probably flawed, i'm sure, i'm stepping into a trap by answering this, but then, i don't give a flying fuck what you or anyone thinks as long as i am right about the trade overall, and if i make a profit even better.
so since you asked...
i'm long MSFT bc of the windows7 effect, it will pull up almost all of tech, the upgrade cycle starts once again.
MSFT is such an incremental mover, but i see it breaking 25 within a month, easily most likely, and i want half my position protected at 22 to lock in some of my profit, 22 and 25 will be my marks, in ~10% increments, as close to in the money as possible, but just outside to get a higher return getting closer to expiration.
writing the 20 call is to lock in a dollar of protection into my long position outright in case the market pulls back before W7 announcement, which i believe is a distinct possiblity. i can just sense this market tanking 10% by week end or early next week.
MSFT breaking 20 is a massive buy signal. but i think selling the 20C was me not paying attention. i hadn't really thought about the W7 effect until this morning when i looked at the hardware companies. so i'll probably dump that and sell the 20C again when the stock rises to 22 to lock in my profit going into expiry.
i'm terrible at calculating the time decay of options. it isn't my best suit.
it's the actual trading decision that matters most to me.
being right is always better than making a profit.
but my concern is i believe msft will acquire YHOO within the next month or so, so my sources say, and that would likely knock a couple points off MSFT. i'm long YHOO and selling the in the money calls month by month as well.
no way google can get DOJ approval to buy YHOO, and bart isn't there to turn the company around, she's there cut the fat to increase the purchase price, and integrate it more smoothly into the cult that is microsoft. i also think the purchase price will be north of $25, so i'm long the YHOOJUL20+25C as well, a hail mary if you will. i've done these before, been fairly successful. they've paid a few big bills once or twice, and i know enough about how silicon valley acquisitions work, and i have friends in the industry, so do the math.
after that, i'll sell out when they hit the resistance lines, probably the day of the announcement, maybe the day after. if you have to ask why, then you don't know the rule, and should probably ask that next.
today i added DELL, HPQ, RMBS, INTC, CSCO, the majors primarily, all long for a month or so, going into the june (?) launch of W7.
i'll likely hedge them in a similar manner, but they are not my primary positions at the moment. i'm more focused on GS and the oils at the moment.
my entire account is down about 7% at the moment because of two major positions i'm carrying longer term, but of all my trades from friday to today, i'm up over 20% in three days, so i must be doing something right.
rb.
Quote from TRYKtrading:
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i'm long MSFT bc of the windows7 effect, it will pull up almost all of tech, the upgrade cycle starts once again.
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I think you misunderstood my question although I appreciate the response. I wasn't asking what your reasoning was for taking a position in Microsoft. I was asking why you're using the synthetic instead of the natural.
Quote from cohenmichaela:
I think you misunderstood my question although I appreciate the response. I wasn't asking what your reasoning was for taking a position in Microsoft. I was asking why you're using the synthetic instead of the natural.
ok.
then the simple answer there is no difference. the risk and exposure is the same. this is just what i picked at the moment. i could make it more complicated, but i see no reason other than to assume more risk, cover more risk in the event my guess was wrong, or i'm just a greedy fucker.
i wanted to lock in the time decay in the JUN20C this week, cover half my downside with the JUL22P, which i just swapped out from the JUNs because the fucking trading window shifted for some reason back into the JUN series and i bought the wrong option.
shit happens. i was net down a few minutes ago on the entire position, now i'm up and climbing...
Quote from TRYKtrading:
ok.
then the simple answer there is no difference. the risk and exposure is the same. this is just what i picked at the moment. i could make it more complicated, but i see no reason other than to assume more risk, cover more risk in the event my guess was wrong, or i'm just a greedy fucker.
I agree, there is no difference in risk. That's why I don't understand why you did the synthetic instead of the natural. That's twice the spread and commisions.
Quote from cohenmichaela:
I agree, there is no difference in risk. That's why I don't understand why you did the synthetic instead of the natural. That's twice the spread and commisions.
i am never concerned with commissions, they're tax deductible, and the spread is getting into arbitrading between months and strikes, and that's not my focus unless i'm specifically trading options, and if i'm doing that, i won't buy the underlying stock.
Quote from TRYKtrading:
i am never concerned with commissions, and the spread is getting into arbitrading between months and strikes, and that's not my focus unless i'm specifically trading options, and if i'm doing that, i won't buy the underlying stock.
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Your long stock, short 20 call is a synthetic short 20 put. If you want the risk profile of a short 20 put then why not just do it instead of the synthetic? I don't understand your reasoning but nevertheless, good luck.
Quote from cohenmichaela:
Your long stock, short 20 call is a synthetic short 20 put. If you want the risk profile of a short 20 put then why not just do it instead of the synthetic? I don't understand your reasoning but nevertheless, good luck.
yes, i know what it is. but i'm hedging against three possible scenarios on the fundamental side, this isn't an arbitrage trade. i'm LONG MSFT assuming the market doesn't turn tail and tank, which i believe it will.
i could just buy the stock and wait, ride out any drop, but why do that when i'm expecting MSFT to stay flat or rise against a sell-off in other sectors.
it's a very non-volatile stock, so i could use a butterfly i suppose, but that would double my commissions by your logic.
but i'm messing with a fixed income strategy writing calls every month into expiry, so i'm testing out different trades and will adjust as i watch the stock move and what the market does as a whole.
tech could sell off like a motherfucker any day now, so i want to be ready for that. i would not want to be short puts if that happens.
i thought i wrote out the reasoning...
Quote from TRYKtrading:
yes, i know what it is. but i'm hedging against three possible scenarios on the fundamental side, this isn't an arbitrage trade. i'm LONG MSFT assuming the market doesn't turn tail and tank, which i believe it will.
i could just buy the stock and wait, ride out any drop, but why do that when i'm expecting MSFT to stay flat or rise against a sell-off in other sectors.
it's a very non-volatile stock, so i could use a butterfly i suppose, but that would double my commissions by your logic.
but i'm messing with a fixed income strategy writing calls every month into expiry, so i'm testing out different trades and will adjust as i watch the stock move and what the market does as a whole.
tech could sell off like a motherfucker any day now, so i want to be ready for that. i would not want to be short puts if that happens.
i thought i wrote out the reasoning...
He's telling you, to no avail, that you ARE short the put. Long 10k MSFT + short 100 June 20C = 100 synthetic short 20P. The arbitrage is governed by put-call parity. Short the 20P is arb= to the long stock/short call combo.
Conversion arb: LONG stock, SHORT call, LONG put.
Perhaps you could've asked him what he meant, because it's obvious that you believe your position is something other than a short 20P.
Quote from TRYKtrading:
i would not want to be short puts if that happens.
i thought i wrote out the reasoning...
Again, you are short puts. 100 of them at the 20 strike. And no you haven't written your reasoning except to say that you don't mind paying double the spread and commissions. You have not given a reason why anyone including yourself would want to do this.
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