4Q,
Thanks for explaining your preference for the synthetic over the natural. You have the mechanics right but not all of the details.
>> another way to exit the trade would be to Sell to Open 2 Sep $35P for something in excess of the $5.00 extrinsic value. <<
Yes, selling that 35 put for $5 creates a "reversal". However, the $5 received is intrinsic value not extrinsic. Though you are most likely out of the trade at expiration, you might not be due to pin risk since a close at 35 means that all options will expire and you'll still have stock exposure.
>> This way I am synthetically out of the trade, but if I have a balance subject to interest, my margin interest charge would be reduced because the premium received for the sale of the Puts would reduce amount subject to interest. From a cash flow standpoint, opening and closing the synthetic in this manner is better than the natural. <<
I'm not sure what you mean by this. What does "from a cash flow standpoint" mean? Are you looking to create a cash balance in your account? In terms of interest received, there's no advantage to the synthetic over the natural. The carry cost is imbedded in the price of the options. Had you initially bought the 35p, it would have cost you about a nickel less of time premium which is about the amount of credit you might receive from your broker "IF" he pays you fairly on the credit balance from the short sale of the stock.
As for "opening and closing the synthetic in this manner being better than the natural, you've racked up 2-3 times the number of commissions with the reversal (depending on whether assigned or you close it yourself). And if you did not go the "reversal" exit you'd have leg out risk (unless using a combo order) which you would not have with the natural. And then there's all the extra slippage of 3 legs versus 1 leg.
AFAIK, the only advantage to the synthetic, assuming no initial pricing discrepancy is the ability to leg in/out and/or trade the components (in particular, the stock intraday).
