Let's explore an Options Strategy known as a Bullish Synthetic spread, which allows an options trader to control 100 shares for less capital compared to buying 100 shares of a stock.
Options chain for AAPL expiring on Apr 19
Suppose one is bullish on Apple, and Apple is currently trading at $181 (as of the time of this writing). If you want to buy 100 shares, the capital required (not including commissions) is $181 x 100 = $18,100. For every $1 rise in the stock of Apple, the gain on the position is $100, and vice versa.
Let's explore a strategy that allows you to control 100 shares of Apple for less capital, and that is done by a Bullish Synthetic spread, by entering a Call option on a buy leg, and a Put option on a sell leg. First select an options expiration, in which I have selected April 19th.
•Buy the $175 Call at $11.80 (debit)
•Sell the $175 Put at $2.77 (credit)
The net debit for this is $11.80 - $2.77 = $9.03 (x 100 shares in 1 contract) would imply $903 debit to control the 100 shares. For every $1 gain in Apple stock, the unrealised gain is $100, while the opposite move of $1 loss in Apple stock would imply an unrealised gain of $100. Do note that the margin impact is roughly $3,154 in this trade, in which that amount of buying power would be blocked off in your account.
Risks: If the stock moves down below $175, and ends up deep in the money, there is a high chance of early assignment. Do note that your assignment chances increase once there is less than 21 days to expiration. If there are more than 30 days, the put option still has extrinsic value and the options buyer is better off closing the options position instead of exercising it.
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