I understand how bullets are used in order to get around up tick rules. But I was curious on how the bullets are actual provide. Are bullets just a long put and a short call of ATM options in the nearest exercise month? (Just looking for the exact composition of a bullet without sounding like i'm too novice and wasting peoples time.)
So how can someone create a bullet for $.02/share and make money. Obviously if i wanted to create my own bullet for the day it would cost me more than $.02/share. Because of spreads on options transactions.
You make money by what the bullet offers you the ability to do: short on a downtick. Sell a stock going down, buy it back lower and make money, all with out worrying about uptick rule.
I mean how does the firm who constructs the bullet able to make a profit when they only get 2 cents a share from the trader who buys the bullet for the day. Who are the counter parties in this transaction