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Your broker could get your fill back so fast that you could conceivably still be on the line with him. Speed is the advantage of using market orders. Floor brokers give them the highest priority. You’re virtually assured, barring limit-up or -down days, of being filled. The disadvantage of market orders is that there is usually no time to stop or change them. Once in the pits, they’ll get filled. ). Your fill comes back at 6 cents. The 2-cent difference occurs due to the speed at which the market is moving.
To protect yourself and end your market exposure, you exercise the put you bought. You would be long and short the silver market or neutral (one position offsets the other). The rules for bear option spreads are as follows: ◆ ◆ ◆ A bear spread profits when the spread narrows. The maximum profit on a bear spread is the credit (the amount the proceeds from the short side exceed the cost of the long position and the transaction costs). The maximum loss on a bear spread position is the difference between the strike price less the credit and transaction costs.
T A B L E 2–4 Long Synthetic 50 CHAPTER 2 Both options do not have to be at the same strike price. If the call is in-the-money and the put is not, you have a deficit since the premium you receive for the put will not cover the call. On the other hand, if the put is in-the-money and the call is not, you’ll have a credit. The only problem with this is that the underlying entity will have to move farther in order for your call to start making money. THE SYNTHETIC SHORT You can trade a synthetic short just as you could a synthetic long.