Shares built from options, for about the interest on the cash. This lesson shows why a bought call and a sold put move like 100 shares, and why a pair that costs almost nothing still carries nearly all of their risk.
After this lesson you can
- Explain why a bought call and a sold put at one strike gain and lose like 100 shares
- Use put-call parity to see why the pair costs about the interest on the stock's price
- Build a synthetic short sale and a risk reversal, and describe the risk of each
- Name where synthetic stock and real shares part ways: dividends, expiration, early assignment, trading costs and voting
- Avoid the five mistakes, starting with thinking a cheap position is a small one
Chapters
- 0:00Shares built from options
- 1:43Why the pair acts like shares
- 3:04One straight line
- 4:24Why it costs about the interest
- 6:20The synthetic short
- 7:32What it ties up
- 9:00The risk reversal
- 10:24Where it and shares part ways
- 11:46Five mistakes
- 13:00The whole lesson on one screen
Practice in the game: Level 16 · Paper Stock