On the road again! Join tastytrade vets Tom, Liz, and Jenny as they venture out live for the first time in over 2 years at Chicago's Vic Theatre.
tastytrade logo
uploaded image

"The Zebra Set UP" // tastyBeats June 22-26

Jun 26, 2020

By:Nick Battista

The great thing about options is the flexibility we can get in regards to leverage. Synthetically, we can build options positions that will act like long stock positions while using less buying power. The ZEBRA strategy is an option trade that will get you that near 100 delta position for a fraction of the buying power in comparison to stock, while also holding less max risk.

ZEBRA stands for “Zero Extrinsic Back-Ratio”. The set up consists of two ITM long options with one closer ATM short option, with the goal of selling enough extrinsic value in the short to offset the extrinsic value purchased in the long.

Screen Shot 2020-06-26 at 2.12.18 PM.png

A quick way to gauge extrinsic value of an ITM option is to look at the same strike OTM option value. 

Here in GLD, the ITM long options have around $2 in extrinsic value (buying two of them for a total of $4 in extrinsic value). To offset the extrinsic value, we can sell the near ATM option that holds around $4 in extrinsic value. This means the position is all intrinsic value, just like long stock while using 1/8th of the BP!

Screen Shot 2020-06-26 at 2.18.33 PM.png

The other plus side to the zerbra strategy is the limited risk in comparison to long stock. The zebra strategy will actually lose delta if the stock goes against your position (here, to the downside). This means that if it continues to drop, the loss will be less and less compared to the long stock position. Here the position has around 88 long delta, which means it will lose $88 in value if the stock goes down $1. With that move the two long options will lose more delta compared to the single short option, which means the net delta will decrease, lets say down to 82. That means your loss actually lessens on the next $1 move down ($82), until it is eventually capped (the amount paid for the spread). This means that in the short term if the position goes against you the loss would be lesser than long stock, while you would have around the same upside exposure as stock (with the delta of the position INCREASING up to 100 as the stock goes up!)

The zebra strategy is a great alternative to long/short stock with nearly all the upside and less of the downside!

Want to talk Zebra’s? Shoot me and email to or tweet me @TraderNickyBAT !

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on 

tastytrade is a trademark/servicemark owned by tastytrade.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.

© copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.