It doesn't have to be on expiration, it can be any day there's a big move. Still, the position is relatively cheap. You can buy the conversion (minus the short calls since they're practically worthless anyway) for a few bucks. Each day it doesn't happen, you lose some theta. On the day it does, you should be able to make up the difference. Yes, the conversion is a synthetic call without the sold calls, but if you're only getting .15 for the sold calls anyway, why bother? How do I know all this as intimately as I do? I was an idiot selling boxes to people on OEX at 250%+ yield. Then someone exercised one of the ITM puts and gave me my biggest single losing position ever. Now I know something about OEX.
Okay, sorry about assuming it was expiration day. Now I see where your going and it does seem to have some merit. My gut says that in practice it will be tough to do, but in theory it does look like it can work. Thanks for taking the time to explain it. Don
Just out of curiousity. Have you earned doing this recently? To me, it seems you are going to bleed to death on those synthetic calls. I cant imagine doing this consistently for a profit, especially off the floor.
Yeah, I've been venting my frustration ad nauseum over at www.rottentomatoes.com I preferred the original: Infernal Affairs. If you haven't seen that then I have now suitably lowered your expectations of The Departed and you are sure to love it even more like 98% of everyone else. Last OT post for me!
Not recently. However, I have been having some good success with long boxes on OEX. Vega has an odd effect on real-time P&L for long boxes on OEX. Substantial intra-day down moves (think Philly Fed a week or two ago) can turn the box wildly profitable. You also have the ability to take advantage of the post 2:00pm exercise scenario and you end up with a very nice profit. Since its cash settled, exercising your put leaves you with a very ITM synthetic short put. Since you know the market is rallying hard anyway, you'll lose the time value on the exercised put, but you'll make a LOT on the synthetic short put the next day. The catch is if the market rallies hard after hours, and then crashes before hours the next day. You can always hedge against that by exercising your puts, and selling the right ratio of S&P futures contracts after a substantial rally.
ahh, i finally see where your conviction is coming from. I can now rest. LOL You are approaching these from a completely different angle than the average ET options retail trader. You have the paper in your inventory already and you may have also pocketed some of the edge.(I am pretty sure its the same angle explored by Cottle or someone on the floor). Yes, if a trader is already carrying these on his sheets it makes sense to try and squeeze a few handles out of the position when the move does happen. But, I cant imagine a retail guy opening synthetic call/put positions for the sole purpose of catching an expected move after hours, and thinking they will be earning over a significant sample of trades.