Ref: STOCK
Long Stock
Linear underlying exposure without option decay or volatility repricing.
Outlook: bull
Complexity: Intermediate
Core Thesis
Long Stock is linear exposure to the underlying business. It has no expiration, no theta drag, and no implied-volatility dependency. It is the benchmark against which options overlays are evaluated.
Structure and Capital Model
- Buy shares at entry price .
- Capital required is full notional (unless using margin).
- Economic ownership includes dividend and corporate action exposure.
PnL Mathematics
For 100 shares, multiply by 100.
- Break-even: .
- Max loss: (if stock goes to zero).
- Max profit: theoretically unlimited.
Risk Characteristics
- Constant delta = +1 per share.
- Gamma = 0, Theta = 0, Vega = 0.
- Volatility affects mark-to-market path risk, not option repricing.
When Institutions Prefer Stock Over Options
- Long holding horizon where option roll costs are prohibitive.
- Need voting/dividend rights.
- Avoiding repeated theta bleed from long optionality.
Portfolio Construction Rules
- Position size by maximum tolerated drawdown.
- Use stop/out rules or overlays (put, collar, covered call) to shape risk.
- Evaluate capital efficiency versus synthetic alternatives (deep ITM calls, risk reversals, futures where applicable).
Failure Modes
- Treating linear exposure like a capped-risk option position.
- Ignoring correlation concentration within portfolio.
- Underestimating gap risk around earnings, guidance, regulatory events.
Practical Checklist
- Is thesis horizon long enough to justify full-notional deployment?
- Is downside drawdown tolerable without optionality hedge?
- Is there a better risk-adjusted expression using overlays?