bfrank 1 Report post Posted November 12, 2018 Something must be wrong with my understanding of this strategy because I'm not seeing the downside. A stock I'm watching the options chain currently for nov 16 strike price 34.50, bid on a put is 2.17 and on call is .58 So as I understand it, I could sell a put and collect $217 and buy a call costing me $58. Minus transaction fees, I'm at about $150 net. It expires in a week so what am I missing? What's to stop me doing this and next Friday with it expires, if I get assigned on the put I just exercise the call and if net 0. Am I missing something? Is there something about expiration where I can get burned? Thanks in advance for any help. Does this strategy have a name? Probably duh answer on that question but I'm newbie. Share this post Link to post Share on other sites
Kim 7,513 Report post Posted November 12, 2018 Which stock is it? Share this post Link to post Share on other sites
bfrank 1 Report post Posted November 12, 2018 AMAT, nov 16 expiration Share this post Link to post Share on other sites
Kim 7,513 Report post Posted November 12, 2018 The strategy is called Synthetic Long Stock. The P/L is basically identical to buying a stock, but allows you more leverage. The position moves dollar to dollar with the stock. Since you are buying 34.5 strikes and the stock is below 33 now, if you exercise the call, you are basically buying the stock at 34.5 (the strike price), which is higher than the current stock price, so this is where you will be losing money, and this loss will offset you gain from the put. Share this post Link to post Share on other sites
NJ_KenRob 157 Report post Posted November 12, 2018 @bfrank I don't know how significant it is, but some brokers do have exercise fees. ie: Tradier is 9.00 a side IB exercise/assignment is free (if in the money) Share this post Link to post Share on other sites
Kim 7,513 Report post Posted November 12, 2018 1 minute ago, NJ_KenRob said: @bfrank I don't know how significant it is, but some brokers do have exercise fees. ie: Tradier is 9.00 a side IB exercise/assignment is free (if in the money) Even with no exercise fee, this strategy will still produce similar returns as just buying the stock. The P/L chart is the same. Share this post Link to post Share on other sites
cuegis 683 Report post Posted November 12, 2018 The only way to lock in "free" money would be if the put- call - dividend was not trading at parity , in which case you would sell the overvalued one and buy the undervalued one and lock in the synthetic options position with stock, as in sell call, buy put, buy stock....This trade would be either a conversion or reversal and is risk free ONLY if the options are mis priced, which does not seem to be the case here. Share this post Link to post Share on other sites
bfrank 1 Report post Posted November 12, 2018 2 hours ago, Kim said: The strategy is called Synthetic Long Stock. The P/L is basically identical to buying a stock, but allows you more leverage. The position moves dollar to dollar with the stock. Since you are buying 34.5 strikes and the stock is below 33 now, if you exercise the call, you are basically buying the stock at 34.5 (the strike price), which is higher than the current stock price, so this is where you will be losing money, and this loss will offset you gain from the put. Ah thanks I see my error, it seems I was looking at the call as if it was 33 strike price. I knew the market wouldn't allow any freebies so something had to be wrong. Share this post Link to post Share on other sites
bfrank 1 Report post Posted November 12, 2018 Actually my error was I was treating it as if the stock was currently priced at 34.50. 1 cuegis reacted to this Share this post Link to post Share on other sites
cuegis 683 Report post Posted November 12, 2018 40 minutes ago, bfrank said: Actually my error was I was treating it as if the stock was currently priced at 34.50. Somehow I had a feeling that's what you were thinking..... The strikes seemed too far away...... Yes, if it were the $34.50 strike you would have been onto something! Share this post Link to post Share on other sites
bfrank 1 Report post Posted November 13, 2018 4 hours ago, cuegis said: Somehow I had a feeling that's what you were thinking..... The strikes seemed too far away...... Yes, if it were the $34.50 strike you would have been onto something! Haha, darn so close! Share this post Link to post Share on other sites
