ZEBRA Strategy

A regular ATM call has 100% extrinsic value that decays over time. If the stock doesn't move, you lose everything. ZEBRA uses deep ITM options that are mostly intrinsic value, so time decay barely affects them. Plus, ZEBRA's delta ≈ 1.00 moves like stock, while a regular call has delta 0.50-0.60 - you'd need nearly 2 calls to match stock movement.

No, ZEBRA doesn't receive dividends because you don't own the actual shares. If dividends are significant for your investment thesis, you may want to own stock directly. However, dividends are often priced into options, and ZEBRA's defined risk and lower capital requirement may offset the missed dividends.

This is ZEBRA's key advantage! If the stock crashes, your maximum loss is the net debit you paid. For example, if you paid A$1,850 for the ZEBRA, that's the most you can lose - even if the stock goes to A$0. With stock ownership, you'd lose your entire A$4,800 investment. ZEBRA has a built-in floor on losses.

ZEBRA typically requires 30-50% of the capital needed for stock. Example: BHP at A$48 = A$4,800 for 100 shares. ZEBRA might cost A$1,850. You get similar movement (delta ≈ 1.00) for much less capital. The trade-off is no dividends and an expiration date.

Yes! Put ZEBRA (Buy 2 deep ITM puts, Sell 1 ATM put) creates synthetic short stock with delta ≈ -1.00. It profits when the stock falls but has defined maximum loss if the stock rallies. Much safer than shorting stock, which has unlimited upside risk.

Target strikes where extrinsic value is <10% of option price. Calculate: Extrinsic = Option Price - (Stock Price - Strike). For A$48 stock with A$38 call priced at A$11.00: Intrinsic = A$10, Extrinsic = A$1.00 (9% - good). Rule of thumb: 15-25% ITM usually works. Check liquidity - very deep ITM can be illiquid.

Delta between 0.95 and 1.10 is acceptable. You can fine-tune by adjusting the short strike slightly above or below ATM. Slightly higher delta (1.10-1.20) gives slight leverage - you gain/lose a bit more than stock. Lower delta is more conservative. Perfect 1.00 isn't required for effective stock replacement.

Close at your profit target (50-100% of debit typically) or stop loss (50% loss). Roll at 30-45 DTE if thesis is intact. If thesis has changed, close regardless of time remaining. Don't hold to expiration - gamma risk accelerates significantly in final weeks.

The short ATM call reduces your cost (and max loss), generates positive theta (reducing time decay impact), and caps your upside at very high prices. The tradeoff is worth it - the reduced cost and theta benefit outweigh the very-far-OTM cap. Assignment risk exists if it goes ITM.

If assigned, you become short 100 shares while keeping your 2 long calls. Options: (1) Exercise one long call to cover the short - simplest, leaves you with 1 long call. (2) Buy shares in market, keep ZEBRA structure. (3) Maintain the complex position. Usually option 1 is cleanest.

Put skew typically elevates deep ITM put IV (puts get more expensive further ITM), opposite of call skew. In Put ZEBRA, you BUY these elevated-IV puts - unfavorable. You sell ATM put at lower relative IV. This makes Put ZEBRA structurally more expensive than Call ZEBRA. Track put skew percentile and enter when skew is flatter.

Consider early exercise when: (1) Approaching ex-dividend, (2) Remaining extrinsic value < dividend amount, (3) You want to capture the dividend. Calculation: If extrinsic = A$1.50 and dividend = A$2.25, exercising captures A$0.75 net benefit. But you lose optionality - usually better to hold unless dividend is substantial.

Both are synthetic stock strategies. PMCC: Long LEAPS call + Sell short-term OTM call. Generates income but caps upside and has lower delta (0.60-0.80). ZEBRA: 2 long deep ITM + 1 short ATM. Higher delta (≈1.00), better stock replacement but no income generation. Choose PMCC for income, ZEBRA for true stock replacement.

Research suggests <3% extrinsic is excellent, 3-5% is good, 5-10% is acceptable, >10% diminishes ZEBRA's benefit significantly. Screen by calculating: Extrinsic Percentage = Extrinsic Value / Option Price × 100. Prioritize lower extrinsic percentage over slightly better delta.

Treat ZEBRA as equity exposure for portfolio allocation purposes. Delta ≈ 1.00 means it contributes to portfolio beta like stock. Multiple ZEBRAs increase directional concentration. Unlike owning stock, ZEBRAs have defined risk - can actually reduce portfolio tail risk. Monitor aggregate delta exposure across all ZEBRAs.