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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