There is indeed risk to the firm selling you the bullet. Let's say, for example, that the stock is halted and the company in which you own the bullet is bought out at a 50% premium. You own a put with a strike price that is not 50% greater than the current market price. So, while your deep in the $ put becomes worthless, the stock may indeed go above the strike price generating large profits. I know it's rare, but it has happened.
I use bullets everyday. could not make money without them. I have to admit i did not even know what they were
As the trader owning the bullet, I wonder if you could make the phone call to the bullet company and sell the call to lock in the reversal. The trader then hits a home run since he was long the call synthetically at 0 which is now worth a lot. This is the reason why I sometimes put on a long put long stock position with 3 months to go. I know I am possibly wasting the 50 cents I could make by selling the call right then but I open myself to the possibility that the OTM call goes ITM within 3 months.
Probably in the neighborhood of 25 cents over fair value. I know with my ex LLC, you can get it for less if you are patient and willing to wait for the broker to work it against the crowd. He could call you with bid/oofer, you counter offer and so on.
Huh? Let's clarify things: 1) Let's say we are trading GE for the sake of this example 2) Let's buy a GE DIM Dec '02 45 Put - close of Fri ~ 14.40, and further, let's not assume a B/A spread... 3) Buy GE MOC on Fri = 32.40. Would you please clarify what you are saying using these numbers as an example? Perhaps you are talking about a Parity Put position [single strike arbitrage ?] where the only "risk" is the time value and or the cost of money to put on a Parity position? nitro
A great example of this is the week after Sept 11th Bullet firms closed the doors for the week Robert
I looked at my option matrix of Ge and what I could see doing is buying the long stock, long the 45 put in Dec at 12.8 and instead of immediately selling the 45c at 25 cents, just leave that unlegged hoping that if GE goes up before Dec, I might be able to sell the 45 call at a greater price. All it is is I am taking the chance of legging the short call later on. It has happened to me on several occasions wherein the stock was in mid 50's had a bad couple of weeks, I put on the synthetic call and stocks rebounded from low 30s to mid 40's. I get the ff. benefit 1. "bullet"s via the married put. 2 cheaper overall cost since I put the married put only once intead of paying the LLC 2 cents per share per day when I put it on. 3. possibility of homerun IF stocks rebound. Hope this clarifies things.
I know there are firms that charge only 2.5/share (such as Echo), but that is given here as a typical charge. In fact, 2.5/share is about as good as it gets. Most firms charge anywhere from a little more to much, much more. As far as the risk the bullet companies take on, I think that is why there are some stocks each day for which bullets are unavailable (often the ones you most want them for).