Discussion in 'Options' started by qazmax, Aug 8, 2002.

  1. qazmax


    I am confused as to why traders want to use "bullets".

    I understand that a bullet is long stock... short synthetic (-C & +P) at higher strike than the stock is currently...

    I am familiar with reversal/conversions...

    But I read that bullets were not in exchange traded options.
    Who benefits from these postions?

    Is it just a way to sneak around the short-sale rules?
    Holding the convesion to sell short stock?

    Anyone have any details on the usage of these?

  2. Sanjuro


    The market is tanking. A good stock you want to short
    is going down also. You are not going to be able to
    get an uptick in order to get your short order in. So
    with a bullet, you will be able to short by selling the bid.
  3. Yes.
  4. qazmax


    So this alows the long sale to be paired up with the long stock... and leaves a short synthetic stock in the options.

    So you are short the synthetic... = short stock then you buy the stock back when you want to close it.

    Why do these have to be unlisted options? Is it becasue they do not really exist? Or so the trader can avoid pin risk and interest rate risk? Is it perpetually a higher strike to make sure of this?

    Does the position really exist or does someone just say on paper that you have this riskless position and then you can short against it? Do you have to pay comissions on these fantasy positions?

  5. Take a wild guess.
  6. is that true that they are not using listed options to do this ? If that is true, who is the counterparty to the trader, the prop firm ?
  7. ElCubano


    There is a cost for bullets (.01/ share or fixed amount for some firms) ..... they are great when the market is falling; there lies the problem. Not everytime you use a bullet (ie. thinking the market will tank or continue to tank) does the market really tank. So u will need to incorporate this cost into commissions and they will eat you alive..

    just my 2 cents
  8. qazmax


    If there is no real need for the actual options to even exist; it seems this would be charging commissions for the right to short-illegally.

    Seems like the regulators are slow on this one... how long before they catch on?

    If thet do exist can you early exercise your put and be naked the call? Can you choose you strike price? Will they hold an options portfolio of unlisted options for you? Is there a market to trade out of these positions if they do?

  9. The options have a one day time premimum written by the bullet firms.

    We pay .025 per share for bullets at my firm

  10. Regulators know all about this read all the rules on regulation-T

    They talk about Jaguars another name for bullets.

    #10     Aug 8, 2002