Another easy money strategy

[Profitaker]

Actually need to add-in the difference between strike and underlying at the time of going long.

Break-even is;

$ 75+ (76.30-75.00)/2 = $ 75.65

$ 75.65 – ($ 15.10 + $ 10.80)/2 = $ 62.70

 

[riskarb]

Quote from Profitaker:

Actually need to add-in the difference between strike and underlying at the time of going long.

Break-even is;

$ 75+ (76.30-75.00)/2 = $ 75.65

$ 75.65 – ($ 15.10 + $ 10.80)/2 = $ 62.70

No you don't. The synth takes into account the spot price the thread starter mentioned, provided those quote were indicative as quoted.

 

[Profitaker]

I agree the synthetic equivalent, but not his break-even. It's $ 62.70, see above.

Not $ 64.20.

 

[Profitaker]

Quote from riskarb:

The synth takes into account the spot price the thread starter mentioned

No it doesn't. Run a practical example and you'll see it.

 

[riskarb]

C'mon Profit. Any combination of the stock/call synthetic is going to equal its natural equivalent. They're 100% fungible under all terms.

Whatever credit is received on the natural put will be equal to the stock/call combo-credit; if not, there is an arbitrage via replication. Therefore, look to the nautral put at 10.80 to price the synthetic. If the put is trading at $10.80 then the synth is trading at $10.80 as well. Exclude execution variance.

 

[riskarb]

Quote from Profitaker:

I agree the synthetic equivalent, but not his break-even. It's $ 62.70, see above.

Not $ 64.20.

They have to carry the same PnL distro -- that's the defintion of equivalence.

 

[riskarb]

Quote from IV_Trader:

buy stock , sell call , buy put
profit =(15.1-10.8)-(76.3-75)=3$
"free" return of 4.1%

But that's approx the modeled forward rate I see here in bloomberg. The conversion carries rho-risk; so an increase in FI rates is a negative.

 

[Don87109]

Quote from Don87109:

If Apple falls below $50.40 at expiration your paper loss will be the difference between $50 and the price of Apple stock. In addition you will be assigned more shares of Apple which you can sell immediately to minimize any further loss.

If you like Apple at $50 maybe the above drawback does not bother you, but remember, not so long ago Apple was in the thirties.

Don

Oops, as other posters have suggested my break-even figure is wrong. My revised figure is $62.7 as Profitaker has already stated.

Investment =-76.3+15.1+10.8=-50.4
At expiration Call =0, Put=-12.3, Stock=62.7
Value at expiration =+0-12.3+62.7=50.4 (equals investment above)

Hence 62.7 is break even.

 

[riskarb]

What is the b/e at expiration if selling two puts?

 

[IV_Trader]

Quote from riskarb:

But that's approx the modeled forward rate I see here in bloomberg. The conversion carries rho-risk; so an increase in FI rates is a negative.

I know , I was just having fan posting "free' risk trade sample