A call, a put and the shares have to stay in line, and when they drift, traders lock in the gap. This lesson shows how a conversion and a reversal work, why interest sets the gap, and what can still go wrong.
After this lesson you can
- Explain why a call, a put and the shares have to stay in line
- Work out what a conversion and a reversal lock in
- Explain what interest and dividends do to the gap
- Name what can still go wrong, even for professionals
- Read a box spread as two spreads with one fixed value, and avoid the five mistakes
Chapters
- 0:00When a call drifts out of line
- 1:34Why it ends at exactly the strike
- 2:34Interest sets the gap
- 3:44The reversal
- 4:49Who makes these trades
- 5:41What can still go wrong
- 6:40Two spreads, one fixed value
- 7:58Dividends bend the gap
- 8:51What it means for you
- 9:48Five mistakes
- 10:45The whole lesson on one screen