The Interactive chart is designed to give you an
idea of how options and stock can work together to give you added safety. The use of call
options, put options, and stock positions can be used to protect against loss, generate
income, or create a synthetic position in a stock. Depending on which kind of
securities you select to use (calls, puts, or stocks), the chart will show you when each
of the two securities are profitable as well as when the combination, or net, of the two
securities together are profitable. You should be aware that options strategies can
be very volatile, so please contact your broker for help before working with option
contracts. Furthermore, stock options should only be used where suitable and with
the help of a trained financial professional.
Here are some examples of
strategies that are used to help hedge against loss or take advantage of certain market
conditions.
| OPTION STRATEGIES |
|
Security 1 |
Security 2 |
Description |
| Call and Put Strategies |
Long Straddle |
Long Put |
Long Call |
This combination
yields a net profit if there is a large price movement (up or down). |
Short Straddle |
Short Put |
Short Call |
When speculating
on a price consolidation or small movement, this gives you added income. |
| Synthetic Long Stock |
Short Put |
Long Call |
This combination
simulates a long stock position. |
| Synthetic Short Stock |
Long Put |
Short Call |
This combination
simulates a short stock position. |
| Put and Stock Strategies |
Synthetic Long Call |
Long Stock |
Long Put |
This combination
limits the net loss in a downward market. |
| Synthetic Short Call |
Short Stock |
Short Put |
When speculating
on a downward market, this gives added protection when the stock price increases. |
| Call and Stock Strategies |
Synthetic Long Put |
Short Stock |
Long Call |
When speculating
on a downward market, this will limit the net loss when the stock price increases. |
| Synthetic Short Put |
Long Stock |
Short Call |
This gives added
protection in a downward market. |
| Long
and Short Stock Strategy |
Short
Against the Box |
Long Stock |
Short Stock |
This allows you to capture profit without immediate
tax consequences. |
**In the context of this
particular option analysis, "Long" means you purchased the security,
"Short" means you sell the security with an obligation to either 1) buy it back
at a later time (i.e. close out the short position) or 2) adhere to the stipulations of
the underlying stock option.
|
