Description: This strategy creates security around your underlying position. When you long the put you use the short call to pay for it. With this play you have protected your downside movement and capped your upside potential.
Setup: Own the stock and Sell (short) a call and Buy (long) a put
Bias: Neutral to Slightly Bullish (If the underlying sky rockets in price you will be forced to sell at the strike price missing out on the extra gains)
Break-Even: Two breakeven points could exist:
Max Profit: Limited: The strike of the short call - the current underlying price + the credit or - the debit paid
Max Loss: Losses will equal the current underlying price - the strike of the long put + the debit paid or - the credit received
Margin: The short call is covered by the purchase or ownership of the stock - no margin needed
Time Decay: As time passes the call will drop in value and the put will also drop in value. This is a neutral effect.
Implied Volatility: Movement in implied volatility will also be neutral.
Notes: None at this time
Featured in Trade Review: None at this time
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