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Tackle Today: Wedding Invitation 💍

August 7, 2018

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Mr. OCC and Mrs. NYSE invite you to share in their joy at the marriage of their children XPTO Stock and XPTO Long Put, Saturday, the twenty-ninth of September, Two thousand eighteen at 2 o’clock in the evening at the NYSE Trading Floor, 11 Wall St, New York, NY. Dinner and dancing to follow. Black tie invited.

Now that the risk mode is back on and the huge correction is a couple of months behind us, no one speaks about protective puts anymore. Like a solid marriage, it became a thing of the past. Let’s check the story behind the marriage of those two securities.

Say you bought a single XPTO for $43 and now the price is $54. That’s a 25.6% appreciation.

Say you bought the same single XPTO for $43 but this time you married it with an XPTO 37 Long Put that cost $1.06. The price is now $54. That’s a 22.5% appreciation. The marriage of these two kids brought down the ROI.

Now say XPTO price tumbled to $28. The single XPTO faces a –34.9% loss while the married one faces a manageable –16.0% loss due to its $37 strike price.

If there’s anyone here who knows why these two securities should not be joined together let them speak now or forever hold their peace.

Together we stand, divided we fall.

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What Are Deep In-the-money Options

A deep in the money option has a strike price significantly below the current market price of the underlying asset for a call option or significantly above the current market price of the underlying asset for a put option. The value of such an option is nearly all intrinsic and has minimal extrinsic premium


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