18 lines
1.2 KiB
Plaintext
18 lines
1.2 KiB
Plaintext
EXHIBIT 6.7 Long stock and synthetic long stock with 71 days to
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expiration.
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Looking at this exhibit, it appears that being long the actual stock
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outperforms being long the stock synthetically. If the stock is purchased at
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$51.54, it need only rise a penny higher to profit (in the theoretical world
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where traders do not pay commissions on transactions). If the synthetic is
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purchased for $2, the stock needs to rise $0.46 to break even—an apparent
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disadvantage. This figure, however, does not include interest.
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The synthetic stock offers the same risk/reward as actually being long the
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stock. There is a benefit, from the perspective of interest, to paying only $2
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for this exposure rather than $51.54. The interest benefit here is about
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$0.486. We can find this number by calculating the interest as we did earlier
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in the chapter. Interest, again, is computed as the strike price times the
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interest rate times the number of days to expiration divided by the number
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of days in a year. The formula is as follows:
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Inputting the numbers from this example:
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The $0.486 of interest is about equal to the $0.46 disparity between the
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diagrams of the stock and the synthetic stock with 71 days until expiration. |