15 lines
924 B
Plaintext
15 lines
924 B
Plaintext
The difference is due mainly to rounding and the early-exercise potential of
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the American put. In mathematical terms
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The synthetic long stock is approximately equal to the long stock position
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when considering the effect of interest. The two lines in Exhibit 6.7 —
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representing stock and synthetic stock—would converge with each passing
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day as the calculated interest decreases.
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This equation works as well for a synthetic short stock position; reversing
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the signs reveals the synthetic for short stock.
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Or, in this case,
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Shorting stock at $51.54 is about equal to selling the 50 call and buying
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the 50 put for a $2 credit based on the interest of 0.486 computed on the 50
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strike. Again, the $0.016 disparity between the calculated interest and the
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actual difference between the synthetic value and the stock price is a
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function of rounding and early exercise. More on this in the “Conversions
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and Reversals” section. |