Long Jelly Roll

Delving into the World of Long Jelly Rolls: An In-Depth Analysis

Unraveling the Concept of Long Jelly Rolls

Long jelly roll, an option spread-trading strategy, capitalizes on pricing disparities within horizontal spreads. This intricate strategy involves purchasing a long calendar call spread while simultaneously selling a short calendar put spread, aiming to exploit pricing differentials for potential profit.

Understanding Long Jelly Rolls

Long jelly rolls embody a sophisticated spread strategy, aiming for neutrality in relation to share price movement while leveraging pricing differences between call and put option spreads. Horizontal spreads, comprising call and put options at the same strike price, should theoretically be priced similarly. However, variations arise due to factors such as dividend payouts and interest costs, presenting opportunities for astute traders.

Construction of Long Jelly Rolls

Constructed from two horizontal spreads, long jelly rolls involve buying the cheaper spread and selling the longer spread, with profit derived from the price differential. Modification options exist, including adjusting the number of long positions or varying strike prices, albeit with added trade risks. While retail traders may find transaction costs prohibitive, occasional exceptions present lucrative opportunities for vigilant traders.

Illustrative Example: Long Jelly Roll Construction

Consider a scenario where Amazon stock (AMZN) trades around $1,700 per share, with available call and put spreads at the $1700 strike price. By purchasing Spread 1 (short call) and Spread 2 (short put) at respective prices, a trader can secure a profit, leveraging synthetic stock positions to exploit price differentials.

Short Jelly Roll Construction