360° of PROFITABILITY The more shares of stock (real or synthetic) in your position, the steeper the line in your P&L chart will be. Looking at the P&L chart below to the left, Long Position 1 has 100 shares of stock and represents a faster rate (steeper slope) of profit and loss as compared to Long Position 2, which has just 30 shares of stock in it. In the chart to the right, the blue arrows indicate that we can rotate our P&L line virtually 360°. As shown, this is accomplished by increasing or decreasing the number of shares. (In the chart, a "+20" indicates long 20 shares and a "-20" indicates short 20 shares.)
Why this is important: When you trade options, you are trading contracts that generally represent 100 shares of stock each. Incorporating actual shares of stock into your options positions can be very useful for "fine-tuning" the pitch of your risk curves. Further, there will be times when you want to adjust your risk curve without sacrificing desirable attributes of your options. This, again, can be accomplished by incorporating shares of stock into your option positions. The value of this knowledge will become increasingly apparent as you venture deeper into ChartBender’s educational content, covering such topics as synthetics.
