If I am not mistaken bullets are put up or are sold by OTC option trading firms like Susquenhanna and Essex Radex. There are a couple of retail firms that offer them. The problem is that you have to have more $ than 25K because you are actually buying stock and paying for the put premium when you buy the 'bulet' . After layingout the cash for the put premium and the long stock you then need more buying power to do your daytrades.
Right, you must own it before you can sell long the stock. But if it is not a real security anyways, it can say long 3000 instantly with the click of a button. How does the firm calculate the synthetic short stock margin (the short call and long put), when the long and short stock close each other out? Does it use the naked call margin plus the debit paid for the put? This is what they should use... I would think...
I am not positive about margin since these securities are not regulated-i.e. exchange traded but are otc derivatives. I am sure they have margin per SEC or Fed rules BUT they is probably more relief in the debit/credit since in reality it is an almost riskless transaction. In fact some firms don't even do the sell call side since the put they buy is in the money by big amt that it would be a 5 sigma move before they go in the money -interesting to see if we ever have one of those moves intra-day and now trader call sell the call later at a good profit since he is syntheitcally long the call at zero.
I get the margin on the conversion it is simple. Most alow for 10-1 margin on theis position. (10%) But, it is no longer a safe riskless conversion when the short position is placed in the account. Now it becomes synthetic short stock or (-c & +p). This position does require margin higher than a conversion. I do not think you have to worry about the big swing breathing life into the call position. Because there is no position. Just you being short stock. They call the long stock and the short synthetic a wash and you are left with your short stock. Basically it is an imaginary option position sold to traders for a large comish, in exchange for a legally side-stepping the up-bid (tick) rules. When the regulators check the books show the imaginary conversion, with one day of time value, and a short against that long sale. But the "net" $$ is unchanged. Maybe I should go work for the SEC or NASD?? Seems they have let people trounce all over their regs. and rules...
Gaz...you dont think SEC and NASD already knows about this? What're you..living in the cave for last 20 years? Insitutions (and many daytrading firms) use conversions to do the exact same thing - except conversions last you until the expiration. With bullets, it only lasts till the close of the day...but you're not stuck with the same stock for 30 days or longer. Seems to me you're kinda uppidy about this bullet thing...maybe we sholdnt give you any more info. You a mole?
What i mean is that if you have a married put that last longer than a day which I have done in my retail account, I have the potential for a big gainer bec if stock goes up tomorrow I can then sell the call to complete the leg of a pure reversal which is lng stock, short call long put. RE: the legality of bullets- one has to look at the reason for the short uptick rules which was put forth in the 30's where people short stock that are not borrowable and that they can sell it with impunity. Even though you can opine that bullets are a way around the uptick rule, it still does'nt enable you to do what the barons did in the 30's which is to slam a stock to the ground. If I was a bigshot thinking of shorting XYZ 50,000 SHARES A DAY from 50 to 0 I would have to buy a huge amt of bullets that compounds daily in order for me to slam the stock. Ex. Day 1 buy 50000 bullets for 50k stoCKS I want to short, Day 2 I have to buy 100000 bullets to short another 50K shares Day 3 I have to buy 150000 bullets to short another 50K shares,etc.
I think I have been under a rock...!! I have never worked for a day trading firm, so I have not experienced a lot you learn there. I like the idea of getting around the rules... it shows that the rules are not needed in the first place. If they can be circumvented with no undue stress to the market place then maybe it is argument to rid the market place of the rules? Have bullets been around for 20 years? I am just trying to learn all I can... not trying to bash a service provider or free thinking firm.
I think that is techincally a conversion... I think a reversal has short stock... not that it matters... I know what you mean. Yes the commish is prohibitive and so is the margin, even if it is 10%. But what if there was a firm that offered free bullets. Would that be bad for the market? Still charge for the stock. Since there is almost no fees involved with the bullet aside for some overhead book work - it is feasible.
no one is going to offer free bullets for the simple reason that there is a cost to laying out the $ for the purchses of the put and stock.
There is no cost if there is no product... If I say you are long stock and long a deep in-the-$ put and have zero risk to myself. If I charge you commish to be long and short at the same time, what difference does it make is I really own it or not. Do you really think you bullet company pays a fee to acquire an OTC put? The put is just a book entry, and I bet the stock is too. 100% profit on the commish!! That is my assumption.