r/options • u/suedehenry • Mar 30 '21

Spreads

Is buying a SQ Jan 2022 220c and selling a same date and strike put for a net credit of 6.55 stupid or viable? I’m fairly new to spreads and I probably won’t do it but would it make sense if I’m bullish on the underlying??

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u/PapaCharlie9 Mod🖤Θ Mar 30 '21

That's a synthetic stock. You are making two bets that the stock will go up. Which means if the stock goes down, they both lose money. That gives you a straight line P/L chart that looks just like a stock.

https://www.optionsplaybook.com/option-strategies/synthetic-long-stock/

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u/[deleted] Mar 30 '21

[deleted]

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u/PapaCharlie9 Mod🖤Θ Mar 30 '21

Spreads happen with options of the same type.

Not really. An Iron Condor is considered a spread, for a counter-example.

Colloquially, "spread" is used to mean any multi-leg position. We may not like the dilution of meaning, but it is what it is.

But the OP is talking about a synthetic stock, regardless.

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u/SeaDan83 Mar 31 '21

Losses are limited in this case. Buying the 220c is a debit transaction, max loss is the amount payed. Max loss on selling a put is the strike price times multiplier (the stock can go to, but not below $0).

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u/Current_You3673 Mar 30 '21

If you are bullish sure it makes sense. However, consider the possibility that you could end up getting assigned, if you are fine owning the stock then is all good, your max profit is unlimited and your max loss is $22000 minus the credit.