25 lines
1.1 KiB
Plaintext
25 lines
1.1 KiB
Plaintext
Accepting Exposure • 231
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Risk: Amount equal to upper strike price minus premium received
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Reward: Limited to premium received
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Margin: Dollar amount equal to upper strike price
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Short Strangle
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RED
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RED
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Downside: Overvalued
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Upside: Overvalued
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Execute: Sell an OTM put; simultaneously sell an OTM call spread
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Risk: Call-spread leg: Amount equal to difference between
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strikes and premium received. Put leg: Amount equal to
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strike price minus premium received. Total exposure is
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the sum of both legs.
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Reward: Limited to premium received
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Margin: Call-spread leg: Amount equal to difference between
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strikes. Put leg: Amount equal to strike price. Total mar -
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gin is the sum of both legs.
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The Gist
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In my opinion, these are short-term trades rather than investments. Even
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though a short put uses a short-tenor option, the perspective of the inves-
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tor is that he or she is buying shares. These strategies are a way to express
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the belief that the underlying stock price will not move over a short time.
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In my experience, there is simply no way to develop a rational view of how
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a single stock will move over a short time frame. In the short term, markets |