Forgive my ignorance but I am new to the options game. I've been looking at this strategy and comparing it to an ATM straddle. Short 100 shares and buy 2calls at or around the strike you shorted. If the shares make a quick move down, you can profit before you hit the expiration BE point, and if they move up quickly, same thing. Otherwise it seems the downside BE is shorted price minus the cost of the 2 calls and upside BE is short price plus the cost of the 2 calls. Am I getting this right Is this the same thing as an ATM straddle only more complicated? And is it possible to profit from a quick move that has yet to reach the BE points? EX: LIFC just had downward move on positive earnings. It is now around 27.50. An ATM straddle for AUG would be a bid 3.00 ask 3.40. So maybe I could get it for 3.30. Downside BE is 24.10 and upside is 30.90. But what happens if the pps shoots up $2/share the next day so it would be 29.50. Would I have a profit? Conversly, if I shorted 100 shares at 27.50 and bought 2 AUG 27.50 calls for 1.80 my downside BE would be (27.50-(1.8*2))=23.9 and upside BE would be cost of two calls=31.10? With this second scenario a quick downside move would profit more than a straddle since the stock earns dollar for dollar and the calls only lose .5 (if delta is .5)? On the upside, it is better to have the straddle since you dont have the stock moving against you dollar for dollar. Is one strategy better for bullish or bearish? Or am I totally off base here? what about shorting 200 shares and buying 3 calls? :eek: Any help figuring this out would be much appreciated.

Short 100 shares of stock + buy 1 long call = buy 1 long put through the synthetic relationship Therefor through substitution you are synthetically the same as the long straddle. Your math is wrong where you are using the .5 delta of the calls. It is .5 but you have two of them so when you multiply it comes out to 1 on any move, just like the stock.

Wow, I just learned a lot by searching it and found a great article on optionetics. Thanks guys. That clears it up and makes it much simpler than what was going on in my head. So if I understand correctly, If I shorted 200 shares and bought 3 calls it is the same as two long puts and one long call? This would favor a downside move but still have profit potential with a large move up? Is this the strategy used to favor one side but still profit from a large move on the other side? (I'm sure its not) If not, what is? (I have some books coming in the mail so after that, not as many dumb ?'s ) thanks again