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Anyone do conversions anymore?
- Thread starter nravo
- Start date
Sure it's AA. Currently @ 9.22
May 09 9 call bid .78
May 09 9 put ask .60
I've just started watching option prices and these quotes seem abnormally tight by comparison to the others I've been watching.
Don't know if it's a gem or not. What sort of strategy might you use on something like this?
Is there some terminology that describes when a conversion play is near?
Thanks,
Ray
May 09 9 call bid .78
May 09 9 put ask .60
I've just started watching option prices and these quotes seem abnormally tight by comparison to the others I've been watching.
Don't know if it's a gem or not. What sort of strategy might you use on something like this?
Is there some terminology that describes when a conversion play is near?
Thanks,
Ray
Quote from RainmanRam:
Sure it's AA. Currently @ 9.22
May 09 9 call bid .78
May 09 9 put ask .60
I've just started watching option prices and these quotes seem abnormally tight by comparison to the others I've been watching.
Don't know if it's a gem or not. What sort of strategy might you use on something like this?
Is there some terminology that describes when a conversion play is near?
Thanks,
Ray
Sell the call and buy the put for an 18 cent credit to get synthetic short and then you would have to buy stock at 9.22 which is a 3 cent loser plus comissions
Most of the time, if it looks too good to be true, it is. But once in awhile it's not and you have to be on your toes since a conversion/reversal opportunity is fleeting.
Yes, you have to be pretty nimble to take advantage of a conversion. I use IB for trading. They have a combo order for conversions and reversals. If your platform doesn't offer that then you have to leg in and that's tricky, particularly in a strategy where there's so little room for error. It's not like you can buy 20 puts and then expect to short 20 calls and then buy 2,000 shares and expect all prices to hold as you execute each leg. If your platform offers synthetic put and call combos then you can do it in 2 legs instead of three.
The dividend would be an issue if you were shorting the stock in a reversal. Noobs often look at the option premiums of a pending dividend reversal and think they've found free money, not realizing that they're going to pay out the div if holding on the ex-div date.
Last of all, make sure you understand "Pin Risk" if you're going to dabble in these.
Yes, you have to be pretty nimble to take advantage of a conversion. I use IB for trading. They have a combo order for conversions and reversals. If your platform doesn't offer that then you have to leg in and that's tricky, particularly in a strategy where there's so little room for error. It's not like you can buy 20 puts and then expect to short 20 calls and then buy 2,000 shares and expect all prices to hold as you execute each leg. If your platform offers synthetic put and call combos then you can do it in 2 legs instead of three.
The dividend would be an issue if you were shorting the stock in a reversal. Noobs often look at the option premiums of a pending dividend reversal and think they've found free money, not realizing that they're going to pay out the div if holding on the ex-div date.
Last of all, make sure you understand "Pin Risk" if you're going to dabble in these.
Quote from donnap:
The conversion was:
XYZ $9.05
XYZ May 09 9 call bid $0.79
XYZ May 09 9 put ask $0.63
or .11 gross
I doubt if it really existed. Sometimes certain exchanges' quotes freeze and the real market price is somewhere else. It'd likely be gone before it got that far out of whack.
Donna the last trade in the stock also may have been 9.05 but the current market was higher or there may have only been 100 shares offered at around 9.05 and the next offer in the stock a lot higher.
The bottom line is you're not going to find real executable conversions or reversals for easy edge.