Add training workflow, datasets, and runbook
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Gaining Exposure • 201
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consider whether the prospective returns justify entering a long call posi-
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tion that will likely have to be rolled multiple times before the stock hits
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your fair value estimate.
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By the way, it goes without saying that to the extent that an option
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you want to roll has a significant amount of time value on it, it is better
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to roll before time decay starts to become extreme. This usually occurs at
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around three months before expiration. It turns out that option liquidity
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increases in the last three months before expiration, and rolling is made
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easier with the greater liquidity.
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Having discussed gaining bullish exposure with this section about
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long calls, let’s now turn to gaining bearish exposure in the following sec-
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tion on long puts.
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Long Put
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GREEN
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Downside: Undervalued
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Upside: Fairly priced
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Execute: Buy a put option
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Risk: Amount of premium paid
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Reward: Amount equal to strike price—premium
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The Gist
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An investor uses this strategy when he or she believes that it is very likely
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that the value of a company is much lower than the present market price.
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The investor must pay a premium to initiate the position, and the propor-
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tion of the premium that represents time value should be recognized as a
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