Add training workflow, datasets, and runbook

training_data/curated/text/cb7196a6d3cf131d307f1ad811da31bc241ac2a769c58630dd4e22bb5e6e3650.txt

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+228  •   The Intelligent Option Investor
+With a table like this, you can balance, on the one hand, the degree 
+you are reducing your overall exposure in a worst-case scenario (by look-
+ing at column a) against how much risk you are taking on for a bad-case 
+(intermediary upward move of the stock) scenario (by looking at column 
+b) against how much less premium you stand to earn if the stock does go 
+down as expected (by looking at column c). 
+There are no hard and fast rules for which is the correct covering strike to 
+select—that will depend on your confidence in the valuation and timing, your 
+risk profile, and the position size—but looking at the table, I tend to be drawn 
+to the $215 and $220 strikes. With both of those strikes, you are reducing your 
+worst-case exposure by about half, increasing your bad-case exposure just 
+marginally, and taking only a small haircut on the premium you are receiving.
+6
+Now that we have an idea of how to think about the potential risk and 
+return on a per-contract basis, let’s turn to leverage in the strategic sense—
+figuring out how much capital to commit to a given bearish idea.
+Portfolio Management
+When we thought about leverage from a call buyer’s perspective, we 
+thought about how large of an allocation we wanted to make to the idea 
+itself and changed our leverage within that allocation to modify the profits 
+we stood to make. Let’s do this again with IBM—again assuming that we are 
+willing to allocate 5 percent of our portfolio to an investment in the view 
+that this company’s stock price will not go higher. At a price of $196.80, a 
+5 percent allocation would mean controlling a little more than 25 shares for 
+every $100,000 of portfolio value.
+7 Because options have a contract size of 
+100 shares, an unlevered 5 percent allocation to this investment would 
+require a portfolio size of $400,000.
+The equation to calculate the leverage ratio on the basis of notional 
+exposure is
+× =Notional valueo fo ne contract
+Dollarv alue of allocation number of contractsl everager atio
+So, for instance, if we had a $100,000 portfolio of which we were willing to 
+commit 5 percent to this short-call spread on IBM, our position would have a 
+leverage ratio of