EXHIBIT 5.8 Harley-Davidson covered call.
EXHIBIT 5.9 Greeks for Harley-Davidson covered call (per contract).
Delta 0.591
Gamma−0.121
Theta 0.032
Vega −0.066
Taking It Off
If the trade works out perfectly for Bill, 22 days from now Harley-Davidson
will be trading right at $70. He’d profit on both delta and theta. If the trade
isn’t exactly perfect, but still good, Harley-Davidson will be anywhere
above $68.15 in 22 days. It’s the prospect that the trade may not be so good
at March expiration that occupies Bill’s thoughts, but a trader has to hope
for the best and plan for the worst.
If it starts to trend, Bill needs to react. The consequences to the stock’s
trending to the upside are not quite so dire, although he might be somewhat
frustrated with any lost opportunity above the indifference point. It’s the
downside risk that Bill will more vehemently guard against.
First, the same IV/vega considerations exist as they did in the previous
examples. In the event the trade is closed early, IV/vega may help or hinder
profitability. A rise in implied volatility will likely accompany a decline in