Trader sold the put spreads to partially pay for the purchase of the call spreads. The puts would likely be worth $0.00 if the stock rose to $315 so trader would keep the premium collected. Puts would expire worthless at expiration which is what the trader wants since he/she sold them to a buyer. ***Exercising the calls would not be a trigger to do something with the puts.
But what if the holder of those puts for some reason decided to exercise those puts options they bought from this guy...?
The buyer of those puts paid for the right to short the stock @ 276. If the stock is currently trading above 315, why would he/she want to short @ 276 when it could be shorted much higher @ the current market price(above 315)? ***The calls won't be exercised unless the stock is above 315.
Simplified view of buying calls/puts. (Will buyer exercise?) Trader buys call @ 50 strike price. This gives him/her right to purchase the stock @ 50. As long as the stock is below 50, the buyer isn't going to exercise the call when he/she can purchase it below 50 now in the market. Trader buys put @ 50 strike price. This gives him/her right to short the stock @ 50. As long as the stock is above 50, the buyer isn't going to exercise the put when he/she can short it above 50 now in the market.
I keep looking back at this graphic, https://www.elitetrader.com/et/thre...tential-but-at-what-cost.335107/#post-4909477 And I see the top line in the screen...This is an iron condor, yes? After this point, we can take it to PMs, as this thread need not be a lesson on Options 101. But I am fascinated with this whole strategy of hedging.
1-Iron condor.........NO Trader just sold put spreads & purchased call spreads. Not sure if this has a "name" as I don't get too concerned with labels. 2-This trade has only a small chance of making big money so looking @ the large % profit possible can be misleading. If you babysit the trade it could be closed in "sections" to make a profit but that would require good timing & may significantly increase margin requirements if you close 1 side of a spread individually. ***IMO, beginning option traders should study: 1-Calls 2-Puts 3-Call Spreads 4-Put Spreads Most other more complex option strategies are just a combination of the above so if you clearly understand the simple strategies, the more advanced become easier to understand. ***Study the "greeks" after the above. Knowing all the greeks though isn't a requirement to trade options though. Some uses of options have no need for a complete understanding of the greeks. For example, trading call/put spreads can be done with a little knowledge of "premium". Investopedia.com is a good source of basic option knowledge.
How does one develop a winning strategy with just a little knowledge of "premium"? I wish it is that easy to make a living trading options.
Ironchef you are not a beginner. Hope my site makes things simple http://optionsinvesting.co.uk/trade...tj8ROu_Pp9Ekp185v6VHZHF0x6dlu5k5wCtcTBjnTCyYI