Bausch Health Companies Inc (BHC)

[JLS]

Synthetic Long Stock, split strikes ...

Selling puts to buy calls, but with a gap in strikes.

If it weren't for the split strikes this would be an options version of synthetic stock. Less can be gained because of the split strikes, but if you time it right then you are less likely to be put the stock at a price that is lower than the strike of the Put that is sold.

For instance, if you think VRX will be trading higher next January, you could sell the January 2018 $16 Puts today for $1.99 and buy the January 2018 $19 Calls for $1.63. Entering the trade, you start out with a net $0.36 in your pocket. If you want a little more insurance, you could also buy a January 2018 $11.00 Put which last traded at $0.40. The cost of the total trade would then be 4-cents. And you have an essentially free trade that expires over 5-months away.

Because TEVA's earnings release started this slide down in the drug stocks a few days ago as it dropped about 41% over a few days, and since TEVA is now trading at a price not seen since 2003, I entered this type of trade this morning using TEVA. I sold TEVA Jan 19 '18 $17.50 Puts for $1.73 then purchased TEVA Jan 19 '18 $22.50 Calls for $1.12. This left $0.61 in my pocket. And because of the size of the drop, and the number of years this current price goes back, I'm not spending that $0.61 to buy further downside protection.