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Nothing is liquid if any piece is illiquid. If the puts are not liquid it
is because the stock is difficult to short ...... difficult to short and
hard to borrow may be two different variables and they may be the same. If
the put is not liquid the synthetic will also not be liquid because the
floor cannot easily complete put/call parity. The is no haven when an
illiquid situation occurs.
-----Original Message-----
From: Ira Tunik [mailto:irat@xxxxxxxxx]
Sent: Sunday, October 07, 2001 4:45 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] VERY HEAVY BLK activity ON MSFT
Everyone goes on the assumption that the puts are liquid and in many stocks
they are not. Therefore the synthetic put, long call and short
stock is the only way to go. It allows one to trade the stock, which is
liquid, and the limited risk comes with the call. I have tried to get
out of many put positions that were impossible because of liquidity and
therefor had to go to the stock to take the profit. It is not a
perfect world. Ira.
"Dorothy K. Carter" wrote:
> less risk as well.. when you are short you have unlimited risk.. when you
> buy a put your risk is only premium......... ----- Original Message -----
> From: "Jacobson, Alex" <AJacobson@xxxxxxxxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Sunday, October 07, 2001 2:11 PM
> Subject: RE: [RT] VERY HEAVY BLK activity ON MSFT
>
> > The public does goes the benefit of short stock rebate when they trade
> puts.
> > It is imbedded in the price ... so it really makes very little sense to
> > short as na individual investor. Now that puts trade on almost every
> name.
> > I don't remember the last stats. .. but it used to be the average life
of
> a
> > retail short on the NYSE was a couple of days.
> >
> > -----Original Message-----
> > From: Ira Tunik [mailto:irat@xxxxxxxxx]
> > Sent: Sunday, October 07, 2001 11:43 AM
> > To: realtraders@xxxxxxxxxxxxxxx
> > Subject: Re: [RT] VERY HEAVY BLK activity ON MSFT
> >
> >
> > It is only the public that doesn't earn interest on short stock. As a
> > market maker I earned broker loan rate on the cash received from short
> > stock. During high interest periods you could earn more money being
short
> > stock then by trading. Especially after puts, because that made the
> > reversal a relatively riskless marginless transaction. Also after
several
> > changes back and forth, market makers only had to have cash to cover
> > risk, not the margin amounts that the public was subject to. Many
> brkerage
> > firms did the same thing through their floor operations. Generate
> > cash from short stock and loan that money to their margin account
> customers.
> > The buying public became your bank. Things may have changed in
> > the past few years, but I don't think so. If there is a way to make a
> buck
> > at the expense of the public, the firms will figure it out.
> >
> > Dorothy Carter wrote:
> >
> > > No doubt business picks up in bad markets.... no one is saying that
the
> > > brokerage firms don't make money from stock loans... as I stated
> > earlier....
> > > that's why they do it. One of the things I ask when I call for ok to
> > short
> > > a stock is to see if it is busy or if very many brokers are shorting
> > > stocks... I use it like most use a put to call ratio.. some days if
I'm
> > not
> > > shorting I call just to see how business is going just to see what
their
> > > business is like so I'm aware obviously after 27yrs in the biz. I
would
> > > still maintain that the average broker does not short and that many
that
> > do
> > > have only a few sophisticated clients that do. Most brokers have gone
> to
> > > fee based busines vs comm.. .. I'm curious why the thought out there
> > would
> > > be that the brokerage firms would not charge interest on margin
> > acct..(that
> > > would be like going to a bank and not expecting to be charged interst
on
> a
> > > loan and if fact int rates at brokerage firms are often lower than
loans
> > > that you can get at a bank!!! so don't know that "rip off" as
suggested
> by
> > > Norm is accurate)..to my knowledge there is not such thing as a "stock
> > loan
> > > fee" as suggested in Norm's post... you are charged margin interest
> > > though. anyway.. Thank God Monday is coming so we can get back to
> market
> > > trading ideas .. This thread is getting old..
> > > ----- Original Message -----
> > > From: "Infernal Elk" <infernalelk@xxxxxxxxxxxxxxxx>
> > > To: <realtraders@xxxxxxxxxxxxxxx>
> > > Sent: Sunday, October 07, 2001 2:47 AM
> > > Subject: Re: [RT] VERY HEAVY BLK activity ON MSFT
> > >
> > > >
> > > > >> NW: No, they are loaning the stock so they can earn the stock
loan
> > > fees such
> > > > >> as interest on the credit balance. This source of income often
> > exceeds
> > > the
> > > > >> commission end of the biz. Given the recent deep discounts on
> stock
> > > > >> commissions, I am sure the stock loan fees and interest they rip
> off
> > > from
> > > > >> the public is more important than ever as a source of income.
> > > >
> > > > <unlurk>
> > > >
> > > > having worked in back offices on & off in the past, i have to say
that
> > > > stock loan (equities) & repos ("fixed" income) can be a
*substantial*
> > > > source of financing at relatively little risk to a large firm,
> > > > depending on the sophisication of the software systems that enable
the
> > > > stock loan or repo desks (stock loans are essentially equity
"repos")
> > > > to manage the huge volumes of stock in & out of the firm's box
hourly.
> > > >
> > > > some of the stock loan desks i have seen rival some proprietary
> > > > trading desks in number of personnel. and the stock loan folks are
> > > > just as busy, sometimes busier!!!
> > > >
> > > > it's not as sexy as the proprietary side, but in bad years, the
stock
> > > > loan & repo desks subsidize the proprietary traders' bonus pools --
no
> > > > joke! i've seen it happen often enough at bonus time. stock loan
is
> > > > steady money.
> > > >
> > > > - *lk
> > > >
> > > > <relurk>
> > > >
> > > >
> > > >
> > > >
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