In This Chapter
- How puts, calls, and the financial market work together
- Using puts and calls together to manage risk and return
- Risks of using combination strategies
- Strategies you can use when trades don’t work out
Puts and calls work together. In essence, owning the underlying asset is the same as being long a call and short a put. You make money when the underlying asset goes up in price and you lose it if it goes down.
Furthermore, a long call has a similar payoff to a short put, and a short call has a similar payoff to a long put. There might be times when prices on the different options are out of alignment, ...