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+Option Fundamentals   • 27
+Here we have a stock trading at $50 per share, and we have bought 
+one put option and one call option. The put option is struck at $20 and 
+is trading for $0.35. The call option is struck at $80 and is trading for 
+$0.40. Note that the top part of the diagram looks like the top part of the 
+long-stock diagram and that the bottom part looks like the bottom part 
+of the short-stock diagram. Because a stock investor cannot be simulta-
+neously long and short the same stock, we cannot use such terminology 
+as effective buy  or effective sell  price. In this case, we use breakeven  and 
+abbreviate it BE.
+This option strategy illustrates one way in which options are much 
+more flexible than stocks because it allows us to profit if the stock moves 
+up (into the call’s range of exposure) or down (into the put’s range of 
+exposure). If the stock moves up quickly, the call option will be in the 
+money, but the put option will be far, far, far out of the money . Thus, if 
+we are ITM on the call, the premium paid on the puts probably will end 
+up a total loss, and vice versa. For this reason, we calculate both break-
+even prices as the sum of both legs  of our option structure (where a leg 
+is defined as a single option in a multioption strategy). As long as the leg 
+that winds up ITM is ITM enough to cover the cost of the other leg, we 
+will make a profit on this investment. The only way we can fail to make a 
+profit is if the stock does not move one way or another enough before the 
+options expire.
+Flexibility without Directionality Is a Sucker’s Game
+Despite this great flexibility in determining what directional invest-
+ments one wishes to make, as I mentioned earlier, option market mak-
+ers and floor traders generally attempt to mostly (in the case of floor 
+traders) or wholly (in the case of market makers) insulate themselves 
+against large moves in the underlying stock or figure out how to lim-
+it the cost of the exposure they are gaining and do so to such an ex-
+tent that they severely curtail their ability to profit from large moves. 
+I do not want to belabor the point, but I do want to leave you with one 
+graphic illustration of a “typical” complex option strategy sometimes 
+called a condor :