: You have significant gains in a stock and want to protect them through a period of high uncertainty (like an earnings report) without selling your shares. 2. Synthetic Long Stock (The "Leverage" Strategy)
: Provides a "floor" price where you can sell your stock if it crashes. buy put sell call strategy
This strategy is used by traders who do not own the stock but want to mimic its performance with very little capital. : : You have significant gains in a stock
: This position behaves almost exactly like owning the stock. If the stock goes up, the long call gains value; if it goes down, the short put loses value (similar to owning shares that drop in price). This strategy is used by traders who do
: You want exposure to a stock's movement but prefer to keep your cash liquid or use significantly less margin than a traditional stock purchase. 3. The "Wheel" Strategy (The "Income" Strategy)
While slightly different, this is a popular cycle that involves alternating between selling puts and calls.
: If the stock drops and you are forced to buy it, you then sell a call (covered call) against those new shares to continue earning income until the stock is eventually "called away" at a profit. Comparison Summary Components Primary Goal Risk/Reward Profile Protective Collar Long Stock + Buy Put + Sell Call Hedging Limited downside, limited upside. Synthetic Long Buy Call + Sell Put Leverage Unlimited upside, significant downside. The Wheel Sell Put (then) Sell Call Income Collect premiums at every stage.