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Understanding LEAPS: Using the Most Effective Options Strategies for Maximum Advantage by Marc Allaire

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CHAPTER 12Synthetic Positions

Let’s face it: Some investors and some traders have no desire to get involved with options. They buy and sell stocks, know the risks and potential rewards, know what they are doing, and are happy with the way things are.

Take the case of an investor who over the last decade has built a $1 million portfolio that is fully invested in equities. She purchases stocks for the long term, holds them an average of 2 or 3 years, and makes periodic adjustments by switching out of one equity and into another. Her current problem is that her research has unearthed a stock, Verizon (VZ), that she would like to add to her portfolio, but she does not have a “sell” candidate among her current holdings.

Possible solutions would include ...

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