Tuesday, June 2, 2009

Re: [TheOptionClub.com] WILL THIS WORK?



> From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com]
On
> Behalf Of paul7313
> Sent: Tuesday, June 02, 2009 7:09 PM
>
> stock trading at 100
> sell a put and a call at 90
> if the call is exorcised, exercise the put (european)

Hmm, I've made some pretty desperate adjustments in the past, but have
not yet tried exorcism. I wonder if that would have saved my March RUT
condor...? :-)

--- In OptionClub@yahoogroups.com, "mcatolico" <mcatolico@...> wrote:
> If you sell the put and the call you cannot exercise either option. If
it's
> European options and the call is exercised, that means the put would
have
> expired worthless.
>
> Will it work? Synthetically this position is simply short two 90 puts
(naked
> or unhedged). It will work if the stock goes up or stays above the 90
> strike less the net premium received on the short options.

If you're long the stock, that is; it's not clear from the original
message that that's the case. If you're not, then this is just a short
straddle. But Michael's point doesn't change: If the 90 call is ITM and
gets exercised, that implies that the 90 put is OTM and expires
worthless.

Look, Paul, I don't mean for this to sound at all condescending or
anything -- I'm certainly no pro at this myself -- but... if you don't
understand how short straddles works, then please, please don't go
trading them! This strategy has unlimited risk in both directions. If
you don't know exactly what you're doing, you can blow up your account
real fast with this one.

Martin

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