In which strategy, You buy a stock, sell a call and buy a put of the same strike?

[crgarcia]

In which strategy, You buy a stock, sell a call and buy a put of the same strike?

Which variation of a collar its this?

 

[frostengine]

Isn't that an arbitrage strategy? A conversion? Own the underlying with a synthetic short

 

[hidge]

hello crgarcia,

If you will look at the short call and the long put as an individual position you will find out that it synthetically a short stock.

the combination between the stock and the equivalent for short stock is a position that has nowhere to go.

Such a position will only make sense when you already own a stock which you don't want to sell, but you want to eliminate any down side risk.
So, instead of selling it (shorting the stock) you are building a synthetically short position.

Oded

 

[hidge]

Quote from frostengine:

Isn't that an arbitrage strategy? A conversion? Own the underlying with a synthetic short

You are 100% right.

The only thing is that from a retail point of view there are no arbitrage and the slippage will eat any opportunity that might rise,

There for, the only reason that a trader might be interested in such a position is the risk elimination ("freezing" the stock)

Oded

 

[weewilly]

Quote from hidge:

There for, the only reason that a trader might be interested in such a position is the risk elimination ("freezing" the stock)

Sorry that's not true.

 

[xflat2186]

There are some tax reasons a retail trader would want to do the reversal or conversion but the days of a retail trader being able to arb the stock synthetically are long long gone.

 

[weewilly]

Not talking about the arb. Still there are situations where retail traders would trade conversions or reversals.

Here's an example. You short a stock and buy a call to protect the upside, so you are long the synthetic put. Sometime later, your broker notifies you that your short stock is now hard-to-borrow and/or has been placed on a high-volatility list, leaving you subject to an unwanted buy-in, excessive short stock fees, etc. Perhaps you simply want to free up margin for other purposes. But you still want an equivalent position.

You place an order to buy a conversion at the same strike as your long call. When filled, you have "converted" your synthetic put into a real put.

 

[dagnyt]

Quote from hidge:

.

Oded

Oded? And the letters "Hi"

Is that Oded H??

Mark

 

[hidge]

Quote from dagnyt:

Oded? And the letters "Hi"

Is that Oded H??

Mark

You caught me Mark

Small world isn't it?

Regards,

Oded

 

[spindr0]

Quote from weewilly:

Here's an example. You short a stock and buy a call to protect the upside, so you are long the synthetic put. Sometime later, your broker notifies you that your short stock is now hard-to-borrow and/or has been placed on a high-volatility list, leaving you subject to an unwanted buy-in, excessive short stock fees, etc. Perhaps you simply want to free up margin for other purposes. But you still want an equivalent position.

You place an order to buy a conversion at the same strike as your long call. When filled, you have "converted" your synthetic put into a real put.

LOL. That's a bit of a technicality.

Your example utilizes a conversion order to convert A to B but the trader isn't holding a conversion at any time.