DNDN Look at this play!

arizonadreamer · May 9, 2007

Okay, it looks like a conversion is out of the question since DNDN is nearly impossible to borrow but:

Stock at 7.40
May 7.5 call at .5
May 7.5 put at .8

covered call = naked put

1) covered call: 7.40 stock price - .5 May call = 6.9 debit
2) naked put: 7.50 strike price - .8 May put = 6.7 debit

Any way to capitalize on this?

AZD

atticus · May 9, 2007

Quote from arizonadreamer:

Okay, it looks like a conversion is out of the question since DNDN is nearly impossible to borrow but:

Stock at 7.40
May 7.5 call at .5
May 7.5 put at .8

covered call = naked put

1) covered call: 7.40 stock price - .5 May call = 6.9 debit
2) naked put: 7.50 strike price - .8 May put = 6.7 debit

Any way to capitalize on this?

AZD

You mean the reversal. Conversions are long the natural shares, short synthetic.

Nothing. You can't lay-off stock against the long synthetic. Look for box or roll opportunities, but the reversal is moot.

arizonadreamer · May 9, 2007

Quote from atticus:

You mean the reversal. Conversions are long the natural shares, short synthetic.

Nothing. You can't lay-off stock against the long synthetic. Look for box or roll opportunities, but the reversal is moot.

Yes, a "reverse conversion."

Could you provide an example of a "box or roll."

AZD

atticus · May 9, 2007

Quote from arizonadreamer:

Yes, a "reverse conversion."

Could you provide an example of a "box or roll."

AZD

It's a synthetic long[short] at x[y]; i.e., the reversal at 5-strike, conversion at 10-strike. The stock offsets. Obviously there is no need for trading stock at all, but most box-strikes aren't traded concurrently. A roll is a time-box; long[short] the May 5-strike, short[long] the June 10-strike.

arizonadreamer · May 9, 2007

Quote from atticus:

It's a synthetic long[short] at x[y]; i.e., the reversal at 5 strike, conversion at 10 strike. The stock offsets.

Could you provide actual numbers?

Are we assuming we can borrow the stock?

AZD

atticus · May 9, 2007

Quote from arizonadreamer:

Could you provide actual numbers?

Are we assuming we can borrow the stock?

AZD

No stock enters the equation, unless you're holding inventory of conversions pre-box.

I don't have the quotes at-hand, but this is a long box:

Short May 5 put, long May 5 call

Long May 10 put, short May 10 call

You're long at $5.00 and short at $10.00. Carry is $.03 on $5.00 [strike differential] to June expiration. You'd need to buy the box for < $4.97 to hold a +expectancy, net costs.

arizonadreamer · May 9, 2007

Quote from atticus:

No stock enters the equation, unless you're holding inventory of conversions pre-box.

I don't have the quotes at-hand, but this is a long box:

Short May 5 put, long May 5 call

Long May 10 put, short May 10 call

You're long at $5.00 and short at $10.00. Carry is $.03 on $5.00 [strike differential] to June expiration. You'd need to buy the box for < $4.97 to hold a +expectancy.

Thanks atticus.

AZD