Fewer puts than calls

Discussion in 'Stock Market' started by william the wie, Aug 22, 2018.

  1. justinacolmena
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    justinacolmena Senior Member

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    You guys are forgetting a nifty piece of financial gimmickry called "put-call parity." It works like this:

    S + P = C + K

    where

    K = the strike price in cash
    P = the put option
    S = the stock
    C = the call option

    So any particular stock plus a put option is equivalent to a call option plus the cash to exercise it, all other things (strike price and deadline) being the same. Of course the stock gets voting rights, but the call option does not, so brokers sometimes create artificial shares of stock from the right-hand side of the equation; and they justify selling such artificial shares to margin investors in that their shares of stock are not "fully paid for" at the brokerage house.

    There is a lottery on artificial shares when it comes to dividends or voting rights, the latter are forfeited by the investor, and the former are replaced with a substitute payment which has different tax consequences for the investor.

    Go right ahead. Draw and quarter those crooked brokers and their Chicago options in court. I used to work in that industry, and now they have put a price on my head.
     
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  2. justinacolmena
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    justinacolmena Senior Member

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    That's one of the difficulties in regulating the stock market. Real estate or land is tangible: assuming you own it free and clear, you can build on it or live on it and no one should question your ownership of or evict you from it, even if its fair market value falls.

    Stock in a corporation is intangible. You can look at your broker statement or stock certificates and they will tell you what it's worth currently, but if you lose your ownership of it, well, you just lost your money in the stock market and others mock you because their money is "professionally managed" safe and secure in their 401(k) accounts and they were "obedient" to their Baptist-preacher financial advisers.

    So SIPC is not for individual investors.
     
  3. Natural Citizen
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    Natural Citizen Gold Member

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    The market is distorted. Stocks and Bonds are way too high.

    Be careful.

    I think major correction coming. Historic even. 40-50% bust? Could be, wabbits. Could be...
     
  4. justinacolmena
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    justinacolmena Senior Member

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    Easily. The "correction" which the market really needed, namely prison time, was too slow in coming.
     
  5. Toddsterpatriot
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    Toddsterpatriot Diamond Member

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    Who needed prison time?
     

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