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Market Measures

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When Cuteness Fails

Market Measures

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

This segment of Market Measures takes a look at a strategy that is essentially a combination of a call spread and short put.

We call this strategy a financed call spread because we are financing the debit of the call spread with the credit from a short put.

The financed call spread has undefined risk on the downside and is a bullish strategy.

Our study compares the trade to a 35 delta put, and the results show that the strategy has a higher average P/L but has greater risk than a 35 delta put. Overall, the strategy performs great in a bull market, but has greater risk when there is a market downturn.

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