Long Box

Neutral market by buying a call option and a put option on the same asset

Description

Involves buying a call option and a put option on the same underlying asset, with both options having the same expiration date and strike price. This strategy allows the trader to profit from a neutral market, as the trader will profit if the price of the underlying asset is above or below the strike price at expiration. The trader’s potential profit is limited to the difference between the strike price and the lower of the two premiums paid, minus any commissions or fees associated with the trade.

Sweet spot

Stock price falls below Leg 1

Breakeven

Stock price of the underlying asset is at or below the leg 1

Max profit

limited to the difference between the strike price and the lower of the two premiums paid

Max Loss

Limited to the higher of the two premiums paid, minus the lower of the two premiums paid