Synthetics

Quote from riskarb:

Hajimow -- you seem like a nice guy, but something is getting lost in the translation. They're identical, equivalent. The short put/short call carries a larger credit, but the strike differential must be subtracted from the premium received to achieve the maximum gain at expiration:

3250p/3500c @ 2.00 = 3250c/3500p @ 4.50

Identical PnL, but the $4.50 creidt has greater assignment risk.
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Thanks for your comments. I am trying to understand. I will get about $0.85 credit by selling PUT 32.5 and Call 35 and I will get 3.35 credit by selling Call 32.5 and PUT 35. Are $2 and $4.5 credits received from two versions of the trade? It should be 0.85 and $3.35 right? And you saying when you get $3.35 the risk is higher? I don't disagree with you,I just want to think about it and understand.
 
Quote from hajimow:

Thanks for your comments. I am trying to understand. I will get about $0.85 credit by selling PUT 32.5 and Call 35 and I will get 3.35 credit by selling Call 32.5 and PUT 35. Are $2 and $4.5 credits received from two versions of the trade? It should be 0.85 and $3.35 right? And you saying when you get $3.35 the risk is higher? I don't disagree with you,I just want to think about it and understand.
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My example is hypothetical. I didn't look at the actual prices. The risk of short assignment is higher on the $3250c/$3500p, but not much of an issue. The point is simply that they're identical in all respects, save for the assigment risk. Sell the otm strangle.

$3.35 - $2.50 [strike differential] = $.85; reflects the extrinsic value of both strangles.
 
Quote from riskarb:

My example is hypothetical. I didn't look at the actual prices. The risk of short assignment is higher on the $3250c/$3500p, but not much of an issue. The point is simply that they're identical in all respects, save for the assigment risk. Sell the otm strangle.
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Thanks. I learned something.
 
You guys do know that there really is no winner when you are racing in the special olympics right? :D

This thread has all the makings of a Jerry Lewis telethon. Laaaaaaaaady!

Just kidding arb. :D

Trying to teach synthetics to Hajimow is like trying to explain to Jessica Simpson what Chicken of the Seas is. Bwahahahaha.
 
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