From the Collars article:
“Short 1 ABC Jan 45 call @ $3
Long 100 shares of ABC stock @ $40
Long 1 ABC Jan 35 put @ $3”
If Long 1 ABC Jan 35 put @ $3 means you’ve bought the right to sell stock at 35 for $300, what does Short 1 ABC Jan 45 call @ $3 mean?
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Justin
2
Another way to think about it is:
- long = bought
- short = sold
So if we look at those three legs from our perspective as the investor:
Short 1 ABC Jan 45 call @ $3
- We sold a call option and received a $3 * 100 = $300 premium
- The counterparty has the right to buy 100 shares from us at $45 each (if they exercise)
- We have the obligation to sell 100 shares them at $45 each (if they exercise)
Long 100 shares of ABC stock @ $40
- We own 100 shares that we previously bought at $40 each
Long 1 ABC Jan 35 put @ $3
- We bought a put option and paid a $3 x 100 = $300 premium
- We have the right to sell 100 shares at $35 each (if we exercise)
- The counterparty has the obligation to buy 100 shares at $35 each (if we exercise)
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