I now see what the communication problem was. The expression "naked
shorts" seems to be commonly used in two different ways:
1. Holding short stock without enough long calls to cover them.
2. The practice of a brokerage of allowing customers to short stock
without borrowing the shares to do so.
I was referring to the second meaning in my comments of synthetic
short calls.
On Mon, 17 May 2010 23:39:05 -0400, Ricky Jimenez
<rickyjim@bestweb.net> wrote:
>I have noticed that we often have trouble communciating, Michael. I
>certainly never expressed a love for naked short stock. All I was
>trying to point out is that while an exercised short put can easily be
>turned into and maintained as a synthetic short put, your broker can
>interfere with turning an exercised short call into a synthetic short
>call; you may be forced to simply buy back the stock. The reason may
>be that the broker has no shares in inventory to loan you to short so
>it doesn't make any difference whether or not it may increase your
>risk; you just can't have a position with the particular stock short,
>as a synthetic short call would require.
>
>On Mon, 17 May 2010 21:54:01 -0500, "mcatolico"
><mcatolico@mindspring.com> wrote:
>
>>I guess my only reply is that if you are trading naked shorts and absorbing
>>so much capital that an exercise would result in immediate liquidation, then
>>you have more serious problems than trying to understand synthetics. That,
>>to me, means that you are trading at greater than 100% risk of capital on
>>every single trade. And that means that eventually the odds will catch up
>>with you and the risk of going bust is enormous. If you only have a very
>>small capital amount then what you can trade gets seriously curtailed.
>>Synthetics are obviously out of the question and many kinds of so-called
>>"high probability, low return" types of trades (like condors) are likely to
>>be risky bets. Not saying that you can't become successful with this kind of
>>handicap (i.e. low/limited capital), but, in my opinion, you have to get
>>very good at trading things like plain verticals and theta negative trades
>>like backspreads.
>>
>>
>>-----Original Message-----
>>From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
>>Behalf Of Ricky Jimenez
>>Sent: Monday, May 17, 2010 9:03 AM
>>To: OptionClub@yahoogroups.com
>>Subject: Re: [TheOptionClub.com] GS TRADE [was:How do you manage your Vega?]
>>
>>Whoops, sorry to have been careless below. The sentence below should
>>have read, "This has nothing to do with whether or not that short
>>stock is part of a synthetic short call". A synthetic short call =
>>short stock + short put.
>>
>>
>>On Mon, 17 May 2010 09:07:59 -0400, Ricky Jimenez
>><rickyjim@bestweb.net> wrote:
>>
>>>All I was pointing out is that the holding a DITM short call has
>>>somewhat different ramifications than a DITM short put. The biggest
>>>difference is that because you may have a broker that takes rules
>>>against naked shorting rules for stocks seriously, after exercise the
>>>resulting short stock may have to be liquidated at any time, This has
>>>nothing to do with whether or not that short stock is part of a
>>>synthetic short put. By the way, with respect to the 165 short put,
>>>since it has very little time value, buying it back now will have
>>>almost no effect on the total P/L expiration graph. I've tried itt.
>>>
>>>
>>>On Mon, 17 May 2010 05:09:40 -0000, "Karen"
>>><mcatolico@mindspring.com>u wrote:
>>>
>>>>again you have to understand synthetics. if i am short the call, that is
>>the exact same position as short stock and short a put. if i am short a call
>>and i get exercised and the put still has intrinsic value i will immediately
>>act to sell that put.
>>>>
>>>>all the other aspects of the trade are irrelevant: margin, price of the
>>underlying, and so forth. if you are naked short a call you have all these
>>things to contend with just the same as you would if you started with the
>>synthetic (short stock and short put).
>>>>
>>>>i get exercised all the time. it doesn't matter in the least. i don't
>>trade from a retail account but all the same, if you are not covering your
>>margin in a retail account then you won't be allowed to sell options short,
>>right? why would exercise change your margin requirements? (maybe i'm
>>missing something?)
>>>>
>>>>--- In OptionClub@yahoogroups.com, Ricky Jimenez <rickyjim@...> wrote:
>>>>>
>>>>> This works well when your short put is assigned. I am not so sure
>>>>> about short calls. Have you had the experience of your broker
>>>>> insisting you cover a short stock position, pronto or doing it for you
>>>>> when you are on a break? Certainly that messes up plans for your
>>>>> synthetic short call. I guess if you buy back the short put at
>>>>> exactly the same time the stock is covered, you won't add to the risk.
>>>>>
>>>>> On Sat, 15 May 2010 03:45:55 -0000, "Karen"
>>>>> <mcatolico@...> wrote:
>>>>>
>>>>> >as murthy pointed out, i meant extrinsic (instead of intrinsic)
>>premium.
>>>>> >
>>>>> >how would i handle assignment here? i would simply sell the call and
>>create the same synthetic short put position - with the additional credit of
>>the short call's value.
>>>>> >
>>>>> >assignment has nothing to do with deltas. the deltas wouldn't change
>>in the slightest. short a deep in the money put means that i am long 100
>>deltas. if i get assigned the long stock i would have the same long 100
>>deltas. selling the call against the stock simply converts the long stock
>>back into the original short put that someone was silly enough to assign to
>>me (and thereby give me another $0.05 for free).
>>>>> >
>>>>> >--- In OptionClub@yahoogroups.com, "Ricky" <rickyjim@> wrote:
>>>>> >>
>>>>> >>
>>>>> >> Since this is a paper trade, assignment won't happen before
>>expiration. However it would be helpful to us if you said a few words on
>>how you would handle the long or short stock that has come involuntarily
>>into your position. Would you immediately liquidate all or maybe just
>>enough to get delta neutral, if possible, or what?
>>>>> >>
>>>>>
>>>>
>>
>>
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