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Stock Market Analysis: 06/20/19

At expiry the combination of 2 & 3 (long call, short put) will show the same net gain or loss with any change in the boutiques near me price. The market maker simply puts the three pieces together- selling the call, buying the put and buying the stock. By buying relatively under priced and selling relatively overpriced combinations of puts, calls and stock that have the same risk exposure at the same time, the market maker can take advantage of any mispricing and cancel out his risk. What matters is whether an option is mispriced relative to the underlying stock or to other options at any given point in time so they can create a spread and reduce the risk of buying or selling the option. There are call options on 105 million shares outstanding. So if all Tesla calls were sold by market makers (most likely were) and are 100% delta hedged (market makers should be), then 38 million shares would have to be held to hedge the option position. Delta hedge requirement for these call options is 38 million Tesla shares, worth $14.5bn. Full detail on all Tesla options value and delta exposure from calls, puts and converts below. In reality some of this is cancelled by Put options.

 

A conversion can be either a long call and a short synthetic call, or a short put and a long synthetic put, as well as long stock and synthetic short stock. Looking at option positions in terms of synthetic equivalents tells the market maker his alternatives. If, for example, the 10 call were offered at 40c and the put bid at 38c, market maker could buy the under priced call, sell the expensive put and sell the stock short for a net debit of 2c. He could then earn interest on the $10 he received from the sale of the stock to generate a net positive return with no directional exposure. Using his own appropriate current interest rate, a market maker calculates his cost of carry for the position on including the receipt of the dividend (long stock ) or the payment of one( short stock). Daily Finan. Bull 3X Shs(ETF)(FAS) – After closing slightly above the 50 day moving average on Wednesday, the weak stock market caused FAS to tank below the 10 day moving average on Thursday. The stock Tips value fluctuation on each day is what makes the stock exchange thus volatile.