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training_data/curated/text/5e0ead72a504b9dd503991e69833596447c7f894c8bf50faaf376703d3cc0d37.txt

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+FIGURE 21-2. 
+Bearishly split strikes. 
+C 
+0 
+e ·15. 
+X 
+w 
+Part Ill: Put Option Strategies 
+1u +$100 
+w $0 I-----------'------ ................. -----
+~ 60 
+....J 
+0 
+~ a. 
+Stock Price at Expiration 
+essentially lets him own the put for free. In fact, he can still make profits even if the 
+underlying stock rises slightly or only falls slightly. His risk is realized if the stock rises 
+above the striking price of the written call. 
+This strategy of splitting the strikes in a bearish manner is used very frequently 
+in conjunction with the ownership of common stock. That is, a stock owner who is 
+looking to protect his stock will buy an out-of-the-money put and sell an out-of-the­
+money call to finance the put purchase. This strategy is called a "protective collar" 
+and was discussed in more detail in the chapter on Put Buying in Conjunction with 
+Common Stock Ownership. A strategy that is similar to these, but modifies the risk, 
+is presented in Chapter 23, Spreads Combining Calls and Puts. 
+SUMMARY 
+In either of these aggressive strategies, the investor must have a definite opinion 
+about the future price movement of the underlying stock. He buys an out-of-the­
+money option to provide profit potential for that stock movement. However, an 
+investor can lose the entire purchase proceeds of an out-of-the-money option if the 
+stock does not perform as expected. An aggressive investor, who has sufficient collat­
+eral, might attempt to counteract this effect by also writing an out-of-the-money 
+option to cover the cost of the option that he bought. Then, he will not only make 
+money if the stock performs as expected, but he will also make money if the stock 
+remains relatively unchanged. He will lose quite heavily, however, if the underlying 
+stock goes in the opposite direction from his original anticipation. That is why he 
+must have a definite opinion on the stock and also be fairly certain of his timing.