synthetic options This is a topic that many people are looking for. newyorkcityvoices.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, newyorkcityvoices.org would like to introduce to you Buying Stock at 1/4th The Price? Our Synthetic Long Stock Strategy. Following along are instructions in the video below:
“Everyone this is kirk here again at optionalphacom. Nwhere. We show you how to make make smarter trades today. We ve got a really cool video for you nthat.
I you re really going to love because it shows you how to buy stock at basically n1. 4. Of the price and capital requirement. That it would cost to traditionally just go long nstock and that s using synthetic long stock with options do you guys.
Even know that you can still have nthe same risk reward features of owning the stock without actually owning the underlying nstock since we know that owning and holding long nstock is so capital intensive. Today we ll show you how you can use options as a way nto synthetically. Go long with 1 4. The capital requirement.
This is how we re going to setup. This strategy nwith options first we re going to buy an at the money ncall option. Because we re going to go long the stock and then at the same time. We re ngoing to go across the option chain and sell one at the money put option at the exact same nstrike price.
So buying a call at the same strike as we sell a put option all in the nsame strike price. What s the risk in this position..
Just as with a traditional long stock position nyou do have unlimited risk should. The stock continue to fall into expiration. We re trying to replicate a stock position nso in that case. We do have unlimited risk that the stock does continue to fall as far as profit potential.
Because you are nemulating a long stock position. You have unlimited profit potential up until. The expiration nof. The options you traded this is the only caveat to the strategy is nthat.
We can replicate almost everything with a stock position except for the fact that nstock you can hold much longer and with options you do have a defined expiration date. But this is also great strategy. If you want nto pinpoint or target. Some long stock positions or short stock positions into different times nof the year.
How do you calculate the breakeven points in these. It s very simple it s your long strike price plus or minus nany debit or credit that you receive on the trade usually you ll pay a net debit to enter the ntrade. But in some cases. If the options are trading just a little bit higher than where nyour strikes are you might end up with a credit in which case.
You would take that nlong strike and subtract out the credit that you paid let s go to our broker platform. Here on thinkorswim nand..
We ll take a look at an example. Ge is a very popular stock for people to own. I know a lot of people own in their portfolio nand. Just judging by today s volume.
Almost 37 million contracts that were traded. I d nsay. It s probably still a very popular stock to trade it closed the day just above 204. So if we nwanted to go long this stock and go long it with 100.
Shares we could go ahead and buy n100 shares of. Ge at 2404. If we did that our capital requirement on nthis trade to go long of 100. Shares would be about.
2409 you can see that s the cost to get into this. Ntrade 2409 to get into this trade. That s a lot of money to throw into just none stock in one trade. What we can do with options is we can replicate nthat position by using an at the money call strike and selling an at the money put strike in this case.
We will use the 24 strikes. Which nare right here those are the closest strikes to..
Where the stock is currently trading at. N. 2404. We re going to buy the call option.
And then we re going to go ahead and sell nthe corresponding put option at the exact same strike price you see in this case. Because our strike price nis just a little bit lower than where the stock is trading. We do receive a small credit nof 10 or 10. But the key here is that we re trading the exact same strike prices on both nsides going long the call option and short the put option.
This gives us the exact same profit loss diagram nas. We would have if we just have the long stock you can see that s exactly the same just none upward trending line. The key here is that when we go ahead and ntry to confirm this order you can see that the cost to get into this trade is just about n 7. Because we receive a credit.
But what our broker really covers in margin is about 544 even though we do receive a credit to get ninto this trade. I don t consider that to be the investment. I consider our investment to be what the broker nis holding in. Margin which is 544 when we compare this to the 2400.
That it ncost to actually own the stock below you can see why it costs almost 1 4. To go synthetically..
Nlong ge. As it does to just buy the stock outright using options. We re able to get into and nmimic. The same risk reward.
Features of a stock position. But with 1 4. Of the capital required nto make the trade. Some of the key takeaways from going synthetic nlong.
A stock these are great alternatives to buying the stock outright like we said nbecause. They require such a low capital investment. But again don t let these smaller initial ninvestments blind you to the massive risk that you re taking with this strategy by no means does the fact that you re investing nupfront a smaller amount of capital mean that you have smaller overall risk you still are mimicking a stock position. If tomorrow.
The company goes bankrupt and ngoes all the way to zero you do carry that risk through the trade and i think that that s nan important point to close out this video with as always if you guys have any comments or nquestions. Please ask them right below in the comment section on the lesson page. ” ..
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