Biotech Values

[biomaven0]

>>The short put cost you .55

No, you got .55 for writing the put. If the stock goes to zero, it will be put to you for a dollar, which offsets the dollar you made by shorting the stock. So you end up with 0.15 which was the net credit on your option position.

Key to understanding options is this simple equation:

long stock = long call + short put
(both the call and the put are at the same strike price and expiration).

Just like in algebra, you can move things to the other side. For example, moving the call to the other side:

long stock - long call = short put
this can be written as:
buying stock and selling a (covered) call is equivalent to writing a put.

Peter