Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Welcome irwinjj,

You are asking the right questions, but I am not sure you are thinking about this entirely correctly. Need to delve further to determine that.
One quick response however, is to not think of the .01% interest you are getting on cash as a factor here - the premiums on the sold options is your return on the cash you are putting aside.

Ford synthetic long - I think you understand this one. However, the timing of the exercise of the call is entirely within your control and the timing of the assignment of the put is also fairly predictable except in a few circumstances. Therefore, when I do synthetic longs, I do not necessarily hold out cash needed to exercise the call - I just have a plan of what I might sell if I decide to do so. On the other hand, you will have margin requirements on the sale of the put - usually 30% to establish the position. While it is good to not get overextended, (and PRO sells only cash covered puts) you need to ask yourself why you are doing a synthetic long rather than just buying the stock if you are keeping a cash reserve to cover the put/call if assigned/exercised. The only advantage of a synthetic long to me is that I don't have to put up the full amount of the cash - I am using leverage. What I give up is the right to collect the dividend by not owning the stock. Thus, with few exceptions, I only do synthetic longs in my margin accounts and I take advantage of the leverage that margin give me.

WM - is different. I assume if you have implemented a strangle that you also have purchased shares of WM. If so, you don't need any cash to take care of the call - your shares do that. You do need the cash or margin to cover the $3,300 if the put is assigned.

INTC is again a little different - your goal here is to buy Intel at a lower price or get income. Your return on the $2,400 that you are reserving is the premium on the option - not the .01% interest on the cash.

Hope this helps.

bbmaven
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.