bullet construction

[minmike]

I understand how bullets are used in order to get around up tick rules. But I was curious on how the bullets are actual provide. Are bullets just a long put and a short call of ATM options in the nearest exercise month?

(Just looking for the exact composition of a bullet without sounding like i'm too novice and wasting peoples time.)

 

[LA ECHO]

Long stock + short, unlisted, in the money put.

 

[quicktrader12]

Quote from LA ECHO:

Long stock + short, unlisted, in the money put.

I think you mean Long Stock + LONG deep in the money put.

 

[big_jdez]

Long put, short call, long stock.

 

[quicktrader12]

Quote from big_jdez:

Long put, short call, long stock.

That's a conversion.

 

[nitro]

http://www.elitetrader.com/vb/showthread.php?s=&postid=96308&highlight=bullet#post96308

nitro

 

[thetraderprofit]

Once again, Nitro has it right.

Long Stock+Long put=bullet

 

[silk]

So how can someone create a bullet for $.02/share and make money.

Obviously if i wanted to create my own bullet for the day it would cost me more than $.02/share. Because of spreads on options transactions.

 

[quicktrader12]

Quote from silk:

So how can someone create a bullet for $.02/share and make money.

Obviously if i wanted to create my own bullet for the day it would cost me more than $.02/share. Because of spreads on options transactions.

You make money by what the bullet offers you the ability to do: short on a downtick. Sell a stock going down, buy it back lower and make money, all with out worrying about uptick rule.

 

[silk]

I mean how does the firm who constructs the bullet able to make a profit when they only get 2 cents a share from the trader who buys the bullet for the day.

Who are the counter parties in this transaction