MM78 - BIDU MSL vs SL Lesson

Just a quick lesson today, once again on modified synthetic longs versus synthetic longs. Every so often I see a setup where I go, this is exactly what I am talking about, a very clear decision. This is not financial advice. I am not a CPA and I am not a certified trading advisor. Let's dive into Baidu, ticker BIDU.  

This trade set up a few weeks ago, and now today we have a pullback. Say you are comparing the two and you honestly do not know which one to do, a synthetic long or a modified synthetic long. This is not about me telling you to take this trade or skip it. I simply want you to see how I make the decision, and when it becomes abundantly clear which one is the right one.

Start with the synthetic long. You are selling the January 2028 90 put and buying the January 2028 90 call, for a 7 dollar debit. It was 6 when I first priced it, but it moved a little, and you will still get the point. Your break even is your call strike plus your debit, so 97.

Now here is the important one: what is your risk? It is your short put strike all the way down to zero, plus your debit. Do I think BIDU is going to zero? No. But I get this question constantly. I have a 50,000 dollar account. I have a 100,000 dollar account. I am just getting started, and I do not know if I can even afford a synthetic long. So let me show you exactly how I do the math, so you can learn whether the answer for you is yes or no, and what your alternative is.