Go to http://www.amazon.com/gp/product/B00JFB3V7O to learn more about Equity Options. Because I thought Roman Has and Dow Chemical would stick to the deal, selling the company for $78 a share, it was a fairly small risk to take, to go long the stock using this synthetic stock position, by purchasing a call and selling a put at the same strike price. Let's go over to the Risk Profile, just for a second. I'll show you how this works. Let's take the SPY again. I'll go to the January 12 options and look at the chain. If we think the market is going to bounce back, go long the call, and we'll go short the put. Let's go over to the risk profile, and you'll see that it has almost a perfect 100 Delta. It's 99.5. The Vega is very low. There's very little volatility in this position, because you're basically mimicking a stock purchase. Theta is fairly low. It's only 90 cents a day. The Gamma really doesn't come into play until we get close to expiration. That's why they call it a synthetic stock position - because if you buy one call, and you sell one put, you're basically long 100 shares of the stocks. You have the risks to the downside, as well as the profit participation to the upside, dollar for dollar, for every move in the SPY. If you see an announcement in the news that some company was going to buy another one, for a certain price per share, and it's trading pretty close to that buyout price - there isn't a whole lot of risk by buying a put on that position. You do risk the entire price of the put that you purchase, though, so I do not suggest that you load up on them. But it is definitely a trade that comes along a few times a year, and if the deal falls through. The stock that is being bought out is going to get murdered in the marketplace. It would be a pretty easy thing to pick up some pretty quick profits there. The other thing is, if a deal does not go through - in the case of Roman Has, when the Dow decided they were going to start backing out of the Deal, Roman Has ended up suing them, to complete the transaction according to the original deal. Eventually, Dow was able to find the financing it needed to pay cash for that company. The deal actually did go through. Let's recap this strategy. Basically, if there's an announcement made that a company is being bought, they will announce the shares that they're purchasing the company for. If the market opens at that level or near that level, then it's probably a safe bet, at that time, to purchase a put. Like I said, don't load up on them, but purchase a put. Just in case the deal does not fall through, there could be quite a bit of volatility coming into the market. You would participate in a hugely profitable situation if the deal does start to fall apart, and the shares start to trade back down to their former levels. You are risking the full amount of your put premium, however. Purchase a put, rather than sell a call. For more Equity Options videos be sure to check out our channel: http://www.youtube.com/channel/UCXr2lclULvZAUS7iaKfLQlg To learn more about the Genius Trading System course go to: http://www.amazon.com/gp/product/B00JFB3V7O Additional Tags ================ vertical spreads, options greeks, what is options trading, iron condor, option volatility, option spreads, options volatility, how to trade in options, option strategies, index options, equity options, virtual trading, options spreads, virtual options trading, options trading tutorial, option trading strategy, options trading course, how to trade stock options, options trading systems, options training, learning options, learn to trade options, option trading tutorial, options trading strategy, option trading course, option trading systems, options trading basics, option trading basics, option trading system, options trading courses, options trading training, trade options, what is a stock option, options strategies
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