Close Between Strikes

ZYX is between the strikes ($50 and $55) at expiration

In this case both options will expire out-of-the-money and worthless. The result after expiration: the investor will not be assigned and so retains his original 100 ZYX shares purchased at $52. In addition he keeps the combined call and put premiums of $525, plus any dividend paid to ZYX shareholders. This $525 represents a return on the original $5,200 ZYX investment of approximately 10.1% for three months. But remember that the investor also deposited $5,000 cash into his brokerage account at the onset of this position to secure his written $50 put. Therefore, the $525 premium received and kept represents a return on the total $10,200 assets committed of approximately 5.1% for three months.

Since the investor retains the 100 ZYX shares originally purchased when the combination was sold, the $5.25 combined premium for the call and the put has the effect of lowering the cost basis for these shares: $52 purchase price - $5.25 premium received = $46.75 reduced cost basis. This is also the investor's new break-even point for these 100 shares in the future. He may now choose to sell another combination against the existing stock position, or hedge the position in some other way. He is also free to hold the stock and to profit as long as the shares remain above the new break-even point of $46.75.

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