buy write

Discussion in 'Options' started by emjroll, Aug 20, 2007.

  1. emjroll

    emjroll

    If an order comes in for a buy write or married put how do you calculate the synthetic call or put price?

    For buy write to get synth put is it:
    intrinsic + call value - carry?


    And the married put:
    intrinsic + put value + carry?


    Thanks
     
  2. stock - call + div - carry cost = - put
     
  3. married put = long stock + long put=synthetic long call.

    thus: call=stock price - put strike + put value+interest-dividends

    note that: interest component minus div is your cost of carry aka rc ( i.e. 'reversal/conversion').

    e.g. stock 46.50, put strike is 40 and costs 0.60 to buy, rc is 0.1.
    46.50 - 40 + 0.6+0.1=7.20=call premium (note call strike is 40)

    buy write = long stock - call= - put
    thus: short put=stock price-call strike-call value+rc.

    e.g. stock 46.50, call strike 40 and premium for selling call 7.20.
    short put=46.50-40-7.20+0.1= -0.60 (credit)

    Cheers
    db