In the book, Exhibit 1-9 shows a typical âBoxâ spread.
An option Risk Graph usually display expiration graphs (Hockey Sticks)
If there is time to expiration the Graph looks more like an âSâ curve.
If the underling goes up to the profit end of the hockey stick on the graph.
You could take that profit at expiration, if the underling would just wait there until expiration.
When you sell a Credit spread (Bear Call Vertical) against your Debit spread (Bull Call Vertical)
you collect your profit from that sale and donât have to rely on underling price at expiration.
On your Long Collar (Underling has moved up to $110)
Long Collar = Long Stock + Long Put $90 Strike + Short Call $110 Strike
Box of created by
Short Bear Call Vertical = Long Call $110 Strike + Short Call $90 = Credit Spread
Same strikes and expiration.
You are left with
Short Call $110 Strike + Long Call $110 = Closed null
Synthetic Long Call @$90 Strike = Long Stock $100 + Long Put $90 Strike
Short Call @$90 Strike
At expiration underling above $90
Your Put is OTM it will expire worthless,
Short Call is ITM it will be exercised and your Stock Called out.
Trade is closed (you have made your money)
At expiration underling at exactly $90
Your Long Put is ATM it will expire worthless,
Your Short Call is ATM it will expire worthless,
Your Long Stock is @ $90 Sell the Stock
Close the Trade (you have made your money)
At expiration underling below $90
Your Put is ITM sell the Put,
Short Call is OTM it will expire worthless,
Your Long Stock below $90 Sell the Stock
Close the Trade (you have made your money)
I hope this helps.
Try very hard go understand the sample book. If you can understand it buy the full book and learn it.
More reading, not necessarily related to your original question.
http://www.tsueiconsultants.com/
http://www.trading-naked.com/library/jesse_livermore.pdf
http://tinyurl.com/2scdws
http://tinyurl.com/24j5sp
http://www.trading-naked.com/Articles_and_Reprints.htm