Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: notesfiles - hp internal release 1.2; site hp-pcd.UUCP Path: utzoo!watmath!clyde!floyd!harpo!seismo!hao!hplabs!hp-pcd!bruce From: bruce@hp-pcd.UUCP Newsgroups: net.invest Subject: Re: Newsletter #1 (very long, mostly opt Message-ID: <8700006@hp-pcd.UUCP> Date: Tue, 13-Mar-84 16:52:00 EST Article-I.D.: hp-pcd.8700006 Posted: Tue Mar 13 16:52:00 1984 Date-Received: Fri, 16-Mar-84 02:26:15 EST References: <1156@sunybcs.UUCP> Organization: Hewlett-Packard Portable Computer Division - Corvallis, OR Lines: 45 Nf-ID: #R:sunybcs:-115600:hpcvrb:8700006:000:1503 Nf-From: hpcvrb!bruce Mar 13 13:52:00 1984 I'm afraid I don't understand the logic of the strategy with IBM calls and puts. Is it possible that you are assuming that you own IBM stock to cover the call? Regardless of that, I disagree with your assertion that "there is no risk assuming...". It seems that as the stock rises above 110 you start losing money. This is the way that I see it: Long Short 1 100 call @ $1475 1 110 call @ - $800 1 120 put @ $1025 ------------------ ------------------- cost =@ $2500 cost = - $800 Total cost = $2500 - $800 = $1700 (as you stated). Now on July 20, if the stock is at 120, your position looks like this: Long Short 1 100 call @ $2000 1 110 call @ - $1000 1 120 put @ $0 ------------------ -------------------- Value = $2000 Value = - $1000 Total value is $2000 - $1000 = $1000. You have paid $1700 (plus commission) to take this position. You can receive $1000 (less commission) by closing out this position. Thus you have lost $700 plus the commissions. This isn't what I'd call "at no risk". Even if you assume that you own stock to cover the call, you are still risking your possiblility of making money by an upturn on your stock. I don't consider this without risk either. Am I mistaken? Is there really free money here? Bruce Stephens {hplabs!hp-pcd!bruce}