Combination Strategies

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, ...

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