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In Investment, what are Jelly Rolls?

Jelly Rolls in investment are complex arbitrage strategies involving a series of option contracts to exploit price discrepancies. They combine bullish and bearish spreads to potentially gain from the mispricing of underlying assets. Intrigued by how these can sweeten your portfolio? Let's examine the recipe for successful Jelly Roll trades.
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum

Most of us look for ways to maximize the revenue we generate with investment strategies. One commonly used method of increasing the profit margins for a stock portfolio is by utilizing jelly rolls as one of those strategies. Here are some things you should know about jelly rolls, including how to go about using them and when utilizing this strategy is more likely to reap rewards.

Sometimes referred to as a "long jelly roll," the method involves a two pronged approach. Jelly rolls require the investor to conduct two separate sets of transactions at the same time. With the first transaction, the investor will buy a put and sell a call, with both the put and the call having the same net value. In lay person terms, this means that the investor will announce an intention to purchase a stock in the anticipation that the stock will decline in underlying price, thus realizing a profit, or buying a put. At the same time, the investor also announces the intention to sell a stock and then does so between the opening and closing of future markets, or sells a call.

A jelly roll pan.
A jelly roll pan.

The second transaction in the process of creating jelly rolls is simply the opposite of the first step. The investor chooses to sell a put and buy a call, making sure to not involve the same stocks as used in the first transaction. As with the first step, the strike prices for the two stocks involved in the second transaction should be the same.

However, in order for jelly rolls to work properly, the two stocks involved in this second step should not have the same strike price as the stocks used for the first transaction. As to whether the strike prices for the stocks in the second step should be more or less than the strike prices in the first step, that is really up to the individual investor. Some experts will recommend they be higher, while others will say it does not matter as long as the strike prices between the two sets of transactions are not the same.

The idea behind jelly rolls is to establish both a long term and a short term trading position that will help to create a time variance between the future prices of all the stocks involved. The hope of successful jelly rolls is to realize a profit from at least one of the two steps in the transaction, with the real goal being some profit derived from both steps of the transaction. Jelly rolls are a fairly common trading practice, and one that will often be utilized by professional investors to help enhance the book value of the stock portfolio of their clients.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...
Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...

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    • A jelly roll pan.
      By: Artistic Endeavor
      A jelly roll pan.