New Bullets(married Puts)

There is a rumour of a rumour that generic has found a way around the draconian sec ruling abolishing bullets.....any input would be greatly appreciated.


grimer

 

It's called conversions and they have been around for a while.

 

Who is allowed to still use conversions. I am not allowed to use my hedges with ETG.

 

From what I understood talking to a guy who runs a company that does (did) conversions for major firms the wording in the SEC order nixxed conversions as well as bullets. I might be wrong, but that is how I understood it and I know they stopped offering them.

Brandon

 

mixed strike conversions? Some risk but maybe worth it coz they pass the cost to traders?

 

The longer term "bullets" i.e. conversions can still be used as the SEC views them as "legitimate" and that is what most firms will be moving towards.

Most bullets as we know them were done over the counter instead of actually on an exchange (that is how the executions were so fast, the bullet firm just basically said yeah we'll take the risk for the next 6 1/2 hours) and expired at the end of the day.

I'm referring to the options portion of the bullet.

Note: I could be wrong, just relating what I heard from someone who I think knows what he is talking about.

My guess is a fast version of a conversion will soon be making the rounds, because where there is money to be made, someone will find a way.

 

Avalanche,

Can you explain the different between a fast conversion and a Bullet?

Thanks,

Nice holidays to all

 

hmm well....my understanding from talking to someone in the biz was that down the line it should be possible to buy a conversion on a stock with the click of a button but that it will obviously cost a lot more than they used to. The duration of the conversion will probably not be fixed, in that if it is buying the in the money put the conversion might last until that put expires. If it is the week before options exp your bullet might last a week, if its a day before the software is probably trying to do the transaction on the option that expires next month.

Bascially what I'm thinking is that the hybrid costs more, last longer, etc, only it won't be as difficult as a normal conversion is.

Normally for one of those most guys call their trade desk or whoever tell them what they want, and if they are lucky later that day they get a call or IM back that they own a conversion on their stock, from then on their blotters are screwed up because of where the option and stock closes each day. That is even if they eventually break even on the thing as is usually the case, your blotter can swing a couple hundred bucks a day depending on the options activity.

Again....I'm no expert on this, but a guy I know is and I was listening in on what he thought would happen. Just repeating what I heard for better or worse. LOL.

One thing is certain....some type of hybrid "bullet" will emerge if the uptick rule remains as it is. What it will eventually look like I'm not sure but my guess is bullets as we know them and conversion will meet somewhere in the middle....what the SEC refers to as a resonable duration.

One day bulllet not reasonable duration, but at some point it is....some entreprenur (sp?) will find that point.

 

I know people at each major firm, and I don't believe anyone at generic has anything yet.

 

FYI - There was NO risk for the firm. Bullets were a no risk (for the firm) bookkeeping transaction designed solely to circumvent the uptick rule.

Eliminating them was hardly "draconian". You could certainly argue that the uptick rule is lame, but the SEC finally getting around to eliminate an obvious sham designed solely to defeat that rule is a natural end result.