Dear trading community,
when options started trading at the CBOE in 1973, only calls were available.
Puts were added in 1977 (link to history of CBOE).
Now the question is, how would you have created short strangles and short straddles, my favorite strategies, before 1977 without being able to sell puts?
Well, thanks to the fantastic tastyworks trading platform this is pretty easy to figure out.
Get your helmets on...
First, let's have a look at a regular short straddle.
Now let's create a synthetic short straddle by using long stock and short calls.
(long 100 shares of stock + short 2 atm calls)
As you can see, exactly the same risk profile, but unfortunately long stock costs a lot in buying power.
So let's replace the long stock position with a deep itm long call.
Same risk profile, but much less in buying power reduction.
Ok, this was the easy part, now let's have a look at a 16 delta short strangle.
(short 16 delta put + short 16 delta call)
Now let's create a synthetic short strangle by using long stock and short calls.
(long 100 shares of stock + short one 84 delta call and short one 16 delta call)
Again almost perfectly the same risk profile as a regular 16 delta short strangle, but it would cost you a lot more in buying power, due to the long stock position.
So, let's do it with calls only.
Here also, we have almost perfectly the same risk profile as a regular 16 delta short strangle, but with much less buying power reduction.
So if Elon Musk ever adds a time machine feature to your Tesla and sends you back to the early 70's, at least now you know how to sell premium, even without puts.
Peace,
Stephan Haller
P.S. If you want to learn more about options trading, watch tastytrade or read my books.
