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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}