Call & Put Stupid Strategy
Call Stupid is a simple strategy implemented through the purchase of two options with the same maturity but with two different strike prices. The strategy can be built using put options as well.
Put Stupid Payoff:
Example of a Put Stupid:
A trader wants to enter a bearish strategy on XYZ stock, currently trading at $210. The trader can do a put stupid strategy by purchasing the Dec21 200 Put and the Dec21 190 Put. It means that if XYZ spot price drop below $190 per share between now and the expiration in December 2021, the trader will close its position with a profit.
Call or Put Stupids strategy can be used by markets participants either for speculation or hedging purposes, like for most option’s strategies. For example, a trader who is long of the Future SPX Dec21 maturity can implement a Put Stupid to be hedged against a potential drop of the index during the option life span.
This vanilla strategy became popular as « Stupid » because some traders compare it to a classic spread, where the option bought is partially financed through the option sold. Then, buying two options with different strikes appeared at this time to be stupid, because for most of the market participants it can be easily replicated by buying only one option and then reducing the inception cost. However, the strategy is still famous among equity options’ traders nowadays.
