Jelly rolls are a commonly used investment strategy to increase profit margins for a stock portfolio. The method involves two sets of transactions, buying a put and selling a call, then selling a put and buying a call, with the goal of making a profit from both steps.
Most of us look for ways to maximize the income we generate from investment strategies. A commonly used method of increasing profit margins for a stock portfolio is to use jelly rolls as one of those strategies. Here are some things to know about Jelly Rolls, including how to use them and when using this strategy is most likely to reap rewards.
Sometimes referred to as a “long jelly roll,” the method involves a two-pronged approach. Jelly rolls require the investor to make two separate sets of transactions at the same time. With the first trade, the investor will buy a put and sell a call, with both the put and the call having the same net value. In simple terms, this means that the investor will announce an intention to buy a stock in anticipation that the underlying stock will decline in price, thus making a profit or buying a put option. At the same time, the investor also announces the intention to sell a stock and then does so between the open and close of futures markets, or sells a call.
The second transaction in the jelly roll creation process is simply the opposite of the first step. The investor chooses to sell a put option and buy a call, making sure not to involve the same stocks that were used in the first trade. As with the first step, the strike prices for the two shares involved in the second transaction should be the same.
However, for jelly rolls to work correctly, the two shares involved in this second step should not have the same strike price as the shares used for the first trade. As to whether the strike prices for stocks in the second step should be more or less than the strike prices in the first step, that’s really up to the individual investor. Some experts will recommend that they be higher, while others will say that it does not matter as long as the strike prices between the two sets of transactions are not the same.
The idea behind jelly rolls is to establish both a long and short term trading position that will help create a temporary variation between the future prices of all the stocks involved. The hope of successful jelly rolls is to make a profit from at least one of the two steps in the transaction, with the actual goal of making some profit from both steps of the transaction. Jelly rolls are a fairly common business practice, and one that will often be used by professional investors to help improve the book value of their clients’ stock portfolios.
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