Synthetic stock (buy call & sell put) - can you get assigned or not?

[tommcginnis]

I can do the “money in / money out” T-chart too. Which you did wrong by the way. Did you somehow buy a call ATM for no premium?

The truth is, you’re not trying to get long the stock, otherwise you would just sell a put. Instead, you’re trying to get massive leverage in the call by financing it with said put sale.

While it sounds nice in theory to do that, your broker is going to hold you to naked put margin and so that’s really all the leverage you are going to get. Meanwhile you are rolling the dice on both being directionally wrong and now also 1: exposed short, with no buffer because the call ate your premium 2: potentially levered and unable to cover your short if you get gapped and thus 3: blown up.

I’m sure nobody in the last month can relate.

• The thread has to do with assignment. Read ffs1001 post.
• The difference between capital requirements on a short put, versus a long position, is.....?

See how that works?

 

[tommcginnis]

Being long a [same-strike] call does nothing for you when you’re exercised on [the] short put

Good! Good! Think about that a bit more......

 

[deltaf0rce]

• The thread has to do with assignment. Read ffs1001 post.
• The difference between capital requirements on a short put, versus a long position, is.....?

See how that works?

Nothing I said is invalid.

Here, I’ll put it another way. Do you get more or less naked exposure by being short a put instead of long the underlying stock? More. So how could that possibly work out against you overnight, say any day in March, with the market lock limit down overnight given your non-existence of a credit that was spent on a call position, potentially levered against you 5:1? In the real world your ass is getting carried out. Thanks for playing.

 

[donnap]

It's kind of a naive and poorly worded question.

I believe that FSU interpreted it correctly and that OP meant assigned or auto-exercised.

Sure, at or slightly below 50, this is possible, but not likely. The put may be exercised during RTH or part of AH.

Those with exercise fees may let the put lapse at slightly below 50. Or they may have other reasons to let the put lapse at slightly below 50.

Some puts may be exercised and others not. Then it's a kind of a lottery which puts get assigned.

It's called pin risk and you couldn't be sure if the put is assigned or not.

This uncertainty should really screw with your head. You can't be sure if you already own 100s per synthetic for any further decisions.

 

[zoned_post_meridiem]

Being long a call does nothing for you when you’re exercised on a short put

Right ... it's a synthetic, not a hedge strategy. I'm not sure what I was thinking. But the point still stands that he can get exercise on just one leg.

 

[deltaf0rce]

It's kind of a naive and poorly worded question.

I believe that FSU interpreted it correctly and that OP meant assigned or auto-exercised.

Sure, at or slightly below 50, this is possible, but not likely. The put may be exercised during RTH or part of AH.

Those with exercise fees may let the put lapse at slightly below 50. Or they may have other reasons to let the put lapse at slightly below 50.

Some puts may be exercised and others not. Then it's a kind of a lottery which puts get assigned.

It's called pin risk and you couldn't be sure if the put is assigned or not.

This uncertainty should really screw with your head. You can't be sure if you already own 100s per synthetic for any further decisions.

There are really only a couple of reasons I can think where you would want to do this.

The first is that for some reason, you don’t want to have a futures account. Secondly is that you cannot have a futures account. I fall into the second category. I think that if you’re of those two camps then this is an excellent strategy if you know how to build a position, and have proven success in directional speculation.

For the majority of people though, this is a terrible way to trade.

There are people in this thread trying to tell you that on assignment you’re getting long stock at strike minus premium which just shows you that this is a misunderstood and complex idea.

Get long a futures contract and that way you can’t get busted overnight on a naked short and you also have overnight liquidity 5 days a week.