Interesting situation in an Option

[nitro]

Yeah,

Of that I am as certain as the sun rises in the east and sets in the west.

nitro

Quote from Trajan:

I would just like to add that you have the right idea, but just need to get down all the relationships and synthetics. Couple that with some creativity and options will seam a hell of a lot easier. Volatility, on the other hand, is more difficult, it will take a lot more work and experience.

 

[nitro]

You know, I forgot one thing - you have to _sell_short_stock_ against the long call! That means that in order to get into this position, you have to first offer the stock for sale, or wait for an uptick.

This strategy may become more viable when the new rules for very liquid stocks come into effect in January '04.

Finally, I think this would be a more profitable strategy (fatter premiums) in a higher interest rate environment when the calls would be more expensive - in other words, the arbitrage would be greater...(I think)

nitro

Quote from Trajan:

I don't think you guys understand. Please pardon me for the caps, but IT MAKES NO DIFFERENCE WHETHER YOU LEG INTO THE 10/20 CALL SPREAD FOR A TEN DOLLAR CREDIT OR BUY A 20 CALL AND SELL STOCK FOR ZERO OVER PARITY. You will profit the same either way(maybe more with the latter if the stock goes below 10) with EXACTLY THE SAME RISK PROFILE, in other words none, zilch, nada, but you will have lower commission costs(its cheaper to trade stock) and you will have a tighter spread on the BID/ASK. The bid on those 10 calls is below parity. Would you rather sell stock at 22.09 or 22? It doesn't mean you can't use the 10s as stock(pick off,order sitting in the book or maybe be bigger size); I use deep itms all the time, but it in this scenario stock looks better.