Some "Bright" strategies...

[Newatthis]

My guess is that so many traders will be using them as a surrogate for the market (i.e. Lower margin and no tick test) that the real winners will be the ones who can set themselves up to take advantage of the demand for liquidity at stressful or pivot points in the market. Those traders who can afford to trade the stock from a capital and regulatory standpoint (Bullets) and can be a provider of liquidity to the SSF's (buy on the bid and sell on the offer) at the market turns can make great money trading the futre and the stock as a riskless pair.

Don, will the bd have reduced margin, pure arb, if they have set up the future versus the stock? Big benefit to leverage (the BD) if that is the case.

 

[Don Bright]

Don, will the bd have reduced margin, pure arb, if they have set up the future versus the stock? Big benefit to leverage (the BD) if that is the case. [/B]

This is what is being lobbied for at this time. There is so much "haggling" going on between the exchanges themselves that it will be a while before we have exact settlement procedures, much less margin requirements.

Since the futures will settle to cash, they may not be a "pure hedge" for margin. It took us years to get any offset for S&P futures vs. OEX "across the street margin"...

 

[Don Bright]

I find it interesting that some people who actually trade the option markets do not fully understand the concept and valuation of conversions. I realize why, of course, and that is that the people who are trying to convince the public to trade in the options market are purposely leaving this information out.

I try to spend some time in our workshops and seminars about this (not selling anything here, bear with me), but do not go into it much during actual trading school, since I assume that anyone who wants to trade for a living will know enough to research the basics.

All that being said, let's just throw this out. If you sell a call, and buy a put ($45 strike price) for $2.00 net to you, then you have effectively "sold" the stock for $47 (your short position). Now if you buy the stock for $47, you have a neutral position, with no way to profit, and (virtually) no way to lose $$. You do have, however, long stock, which you can use to hit bids with...and buy back (hopefully) lower. This strategy is used all the time by traders.

When the SSF's get listed, it should throw some of these valuations out of whack for a while, since many traders can use the SSF in lieu of stock. This should open up opportunities to both use "synthetics" for profit, but to potentially use "early exercise" rights to lock in money as well.

Any other ideas out there??