7. Stock and Option Trades

From an option trader’s perspective, pure stock investing is relatively dangerous. That view results from an understanding that there are many different ways to structure bullish or bearish positions on a stock using options. In some sense, this entire book is about alternatives to trading stocks.

Option traders know, for example, that buying a stock is mathematically equivalent to simultaneously selling a put and buying a call. They also recognize that there are many safer ways to create a bullish stock position. For example, an option trader who decides to purchase a stock might also sell puts and buy calls to create a more conservative position that caps both the maximum gain and the maximum loss. A more aggressive ...

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