Bullets & Conversions

Originally posted by stock777
The special deals pro firms give their traders seem to avoid these problems.
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i really wonder how can they (the bullet firms) do that? the only way i can imagine to avoid paying the spreads (both on the put and long stock) would be to loan them out of the inventory. is that what the bullet firms are doing?

also, if the long component of bullets is loaned stock, then i fail to see why bullets are less damaging/manipulative than is natural shorting in the first place.

- jaan
 
What risk??????????????????????????????????????????

If I'm long stock and long a put, the worst that can happen is I sell the stock , and lose the premium on the put, if the stock goes up.


Big deal.


I think I know the real reasons but wont go into them now.
 
Tell me what the difference is between bullets and offsetting long and short positions in the same stock in two different accounts; besides one is legal and one isn't? Isn't the result being able to hit the bid with a sell order and go short w/o the uptick rules?

If they don't want stocks pounded into the ground, why do they still allow this rule to be bypassed by some but not all? And why should professionals go through the hassle of buying bullets in the first place; just get rid of the stupid uptick rules and save everybody money. If they cared so much about the importance of the uptick rule, then enforce it equally. Aren't the people that created this rule dead yet (of old age)?

I heard they were going to relax the NASD rule from a bid uptick to a trade uptick; is this going to happen soon?
 
A long time ago, people used to put on hedged positions to avoid buying bullets or conversions and to get around the uptick requirements.

The broker would put Long 1000 shares of abcd in account 1 and a legal sell short of 1000 of abcd in another account related or cross guaranteed to the first account. So there is zero risk. The trader then whacked the long stock in account 1 when he wants to short market and buys it back later.

They stopped doing that since the NASD cracked down on it. The NYSE has explicit rules regarding this. I agree with you that trading stocks should be symetrical-this leads to more efficient markets much like the futures markets. Maybe one day soon....
 
The difference between a long and short account scenerio and a married put is that the married put has risk to the seller and potential upside gains to the buyer. There is an economic justification to it. At my old firm there was a trader who did not exercise his married put one night and the stock was up the next day by more than the in the money put amount. He made a windfall by not exercising.

If the SEC wanted to crack down they could based the short sale rule on your net risk position including options and all accounts that you havea direct or indirect participation. It just seems to me to be impossible to enforce. That rule would also eliminate conversions as a way around the short rule and would effect all those poor floor traders who rip us off on the other side of our option trades.
 
The reason stated above about being illegal is pretty important to all of us. Hitting bids is a must in trading for a living (or else you are shut out of 50% of all entry trades, buy having to buy first...or else limited to going against momentum by selling on an uptick). These are good tools, and will continue to be until the Single Stock Futures get finalized.
 
I'm assuming that most traders here don't take many positions home - so they only use bullets for intraday positions.

Is a conversion simply a bullet that lasts longer than one day? If so, when does it expire? What is the typical cost at a pro firm for a conversion?
 
Bullets = long stock with a deep in the money put that expires at end of day done completely electronicaly with no slippage


Conversion = long stock plus an short at the money call and long an at the money put -done with floor, usually some slippage, used to be given credits--now cost around .05 and last till options expire-1 to 3 months. Be careful when if you options will expire while stock at strike price--can cause some problems

Robert
 
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