CME’s single-stock futures rev up to overtake ‘ugly’ options trade
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New cash-settled contracts with EFP facility could be an appealing alternative to reverse conversions
Dealers looking to optimise equity funding costs and balance sheet usage often resort to a complex option structure known as a reverse conversion, or revcon.
The trade involves shorting a stock and then selling a put and buying a call on the same name. This creates a synthetic long forward position. The stock sale releases cash and locks in an options implied financing rate, which can be cheaper
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