Long Jelly Roll
Categories: Derivatives
Some desserts are just so tasty, aren’t they? Ice cream sundaes…peanut butter cheesecake…and, of course, jelly rolls. But jelly rolls don’t just have to appeal to our palate. In the financial world, if we know what we’re doing, they can also do wonderful things for our financial palate.
Jelly rolls come in short and long varieties. A “long jelly roll” happens when our option spread includes two put options and two call options with different expiration dates. To set up one of these bad boys, the first thing we have to do is buy a put and sell a call that have the same expiration date and strike price. Step two involves buying another put and selling another call. This spread will have a later expiration date than our first spread, and though the strike price might also be different from spread #1, the strike price of put #2 and call #2 are the same.
The end result is that we end up with two horizontal spreads (horizontal spread = all calls or all puts), and, if we’ve done it right, we should be able to reap some sweet financial rewards. Maybe even sweeter than an actual jelly roll.