182  •   The Intelligent Option Investor
0 24681 01 21 41 61 82 02 22 4
Stock Price
Levered Strategy Overview
Gain (Loss) on Allocation
26 28 30 32 34 36 38 40 42 44 46 48 50(6,000)
(4,000)
(2,000)
-
4,000
2,000
6,000
10,000
12,000
8,000 Unrealized Gain
Unrealized Loss
Cash Value
Net Gain (Loss) - Levered
Realized Loss
Instrument Maximum-Loss Price Net Profit at Fair Value Estimate
Stock $0 $1,472
Option $15 (1.8 × stock loss) $3,803 (2.6 × stock profit)
Three $800 option contracts represent $2,400 of capital or 48 percent of 
this allocation’s capital. Thus 48 percent of the capital was lost with a 34.8 per-
cent move downward in the stock, generating a −1.4 times value for the options 
plus we add another −0.4 times value to represent the loss on the small stock 
allocation; together these generate the −1.8 times figure you see on the loss side. 
Of course, if the option loss is realized, we still own 100 shares, so the maximum 
loss will not be felt until the shares hit $0, as shown in the preceding diagram.
For the remainder of this book I will describe leverage positions us-
ing the two following terms: loss leverage and profit leverage . I will write 
these in the following way: 
− X.x
Y.y
where the first number will be the loss leverage ratio, and the second 
number will be the profit leverage ratio based on the preceding rules that