Synthetic Short Excise Question

R

richardweiming

I want to short a hard borrow stock using ATM synthetic short option combo(buy put sell call). If the stock price moved , the strike price will no longer be ATM, it means it might be hard to trade. I have to wait till excise.
My plan is buy stocks to balance the synthetic short to excise. Then I will have no more margin available.
My question is, is there any risk my option failed to excise due to I have no more margin left? It will be a great danger.
Such as
When a stock is 20 USD, I buy 2 month 20 strike put at 1.00, sell 2 month 20 strike call at 1.00,
Then stock drop to 10 USD, I can't buy or sell 20 strike options, no one still buy or sell it.
I then buy 10 USD stock to balance the synthetic short combo, no more margin I can use.
Now I wait option to excise. Will I have problem because I have no margin to excise options?

Thanks for help
 
I'm not sure why you would buy stock at 10; the position is a winner, I'd just take it off and put it on the board. However, there are many ways to get long deltas - you could sell a put, you could buy a call, or you could buy stock.

If I was in your shoes (assuming the underlying's options are liquid), I'd probably sell a 10-20 delta call and use that to finance the purchase of a put spread. I'm just a cheapskate and anytime I take a directional position on an underlying, I try to do it with a low cost basis.
 
It won't work. If the stock is hard to borrow the short call will be exercised. Making you short a hard to borrow which can't be found. When to go to rehedge it becomes a Reg Sho violation. It's doubtful your brokerage house will allow you to short the call without more than the minimum margin. There is no haven from hard to borrow.
 
When putting on this type of synthetic to short a hard to borrow stock, you should be long a deep in the money put and the same out of the money call. This would keep you from being assigned on your short call, as ajaobson mentioned.
 
ajacobson said:
It won't work. If the stock is hard to borrow the short call will be exercised. Making you short a hard to borrow which can't be found. When to go to rehedge it becomes a Reg Sho violation. It's doubtful your brokerage house will allow you to short the call without more than the minimum margin. There is no haven from hard to borrow.
More...

When I excise short call, I need to sell stock, so I bought stock for preparing. Is that Ok? Yes , it is hard borrow stock, I can't borrow to sell it, but I can buy it for excise? Is it this way?
 
FSU said:
When putting on this type of synthetic to short a hard to borrow stock, you should be long a deep in the money put and the same out of the money call. This would keep you from being assigned on your short call, as ajaobson mentioned.
More...

Can I buy stock to excise the short call? I want to use synthetic short, but I worried about deep OTM and deep ITM options are hard to trade when I want to close positon. Buy stock to excise or use ATM synthetic long to excise?
 
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