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Hi !
The answer to your question is that you will have to start thinking from deep
in-the-money options that carry virtually no time value. As an example
if a stock was trading at USD 120. You would buy a 1 month call strike 60
at 60,30 where the 30 cents is a 6 % p.a. interest rate for the 60 dollars/
1 month. That option has 0 time value and you are just buying stocks with
50 % of the purchase being financed with a 1 month loan at 6 % p.a.
The same idea can be applied to spreads...
I hope this helps you.
Regards,
Hannu Penttinen
Helsinki, Finland
At 14:07 2.1.1998 -0600, you wrote:
>Dear Options Traders From Around The World:
>
>I'm currently taking a course on futures at the Illinois Institute of
>Technology, and as part of a mid-term exam, we were given the following
>tricky question:
>
>"Can Options Spreads Be Used To Create Synethic Loans?"
>
>Now, I'm a bit stymied by this question, and as I understand it, it is
>asking whether there is someway to capture the cost-of-carry (which, for
>a commodity like gold, generally exhibits a full cost-of-carry forward
>curve) by using options. My initial answer to this question is yes, and
>I would capture the cost-of-carry by creating synethic futures from
>options for different expirations and then trading between them but I
>can't quite figure out how it would work.
>
>Any suggestions from any options gurus out there?
>
>Thanks!
>
>Michael Strupp
>Chicago, IL
>
Best Regards,
Hannu Penttinen
"The greatest challenge of mankind is the fight against entropy"
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