I am going to create a bullet by buying 5000 ORCL (closed at 9.96) and buying 50 Nov 12.5 puts (for around 2.60). Total cost including time decay should be 6 cents unless I can squeeze what I pay for the options closer to parity (2.54). Anyone have any experience in doing this? Did I miss something? Sounds cheap to pay $300 for a month of bullets.
You should go long the stock, long the puts , and short the calls. This is probably what jmathers meant by conversion or forward conversion. These are a pain though when you are trying to keep track of your equity, depending on who you clear through. If you can just by daily Bullets through your broker, if they offer them, you might save yourself a lot of trouble. my 2 dimes.
A) you don't need to bullet a thick naz stock B) i also "make" bullets for listed stocks that I trade frequently. for every 100sh, i sell one deep ITM call that is ~6mos from expiration. being hedged, it is usually better to be a seller of options than a buyer.
This isn't a bullet. A bullet is: long stock+long put+short call. What you have created is a synthetic ORCL Nov 12.50 Call, which in reality closed at .05 today.
jmathers was right that's a conversion A bullet is fully electronic , no spread/slippage, and NO TIME PREMIUM It is long stock and a deep in the money put that has a time premium of ONE DAY The original example is long stock and an out of the money put with time premium. Which isn't too hedged long term Robert
Bungrider is right I think. I short thick Nasdaq stocks all the time with no trouble. When you're not getting beat up by a specialist controlling the market (and with Nasdaqs upbid rule) shorting isn't too much of a problem. If the market is really running away from you, you probably won't get filled at the current quote even with a bullet. I really think you shouldn't have too much trouble doing natural shorts. Good luck.
The majority of traders only need to use bulletts for Listed stocks unless you want to short a thin Naz which is very risky.