What exactly is a "Bullet"?
A "bullet" is a hedging strategy to offset investment risk, consisting of a long stock packaged with a long put and a short call. The options and the stock are bought on the same day and the stock purchased will be delivered when either the put or call is exercised. That is where the term "married puts" comes from - the stock is "married" to the option. The put is purchased at a strike price greater than the underlying stock price. The call is written at the same strike price as the put. If the stock price remains less than or equal to the strike price once the strategy is implemented, the call will expire worthless, the put will be exercised, and the long stock will be delivered in order to complete the hedge strategy. If the stock price becomes greater than the strike price once the strategy is implemented, the put will expire worthless, the call will be exercised, and the long stock will be delivered in order to complete the hedge strategy. The option components of a bullet are unregistered, non-exchange traded securities, and there is not a secondary market for them. All Electronic Bullet orders are unsolicited. The position is a day position, and the options are either exercised or expire worthless at the end of the day.
Hi Hans,
you mean selling a naked call??
Please correct me if I am wrong.