Advanced Micro Devices Inc (AMD)

[I_banker]

Alan and HailMary,

You are both correct in a sense. HailMary is correct is saying a cobination of a purchased call and a written put is similar to owning the stock. The catch of course is higher transaction costs and higher spreads, because the market is less liquid and you will not be able to make the difference in the bid/ask.

Where HailMary goes astray is:
1) you will at best get 1-2% interest on your money (current money market rates).

2) You will also be required to post substantial collateral when you write a naked option. This is equal to the option premium + 25% of the strike price + The amount the option is in the money.

3) It will be very hard in reality to find a stock that is trading a precisely the strike price at the time you wish to enter the trade. As a result, the intrinsic value premium on one side of the trade will be higher than the other and this will ruin your very thin economics.

For a discussion on options you can read the standard MBA text which is "Corporate Finance" by Modigliani & Myer; Chapter 14.