176  •   The Intelligent Option Investor
02468 10 12 14 16 18 20 22 24
Stock Price
Unlevered Investment (Full Allocation)
Gain (Loss) on Allocation
26 28 30 32 34 36 38 40 42 44 46 48 50(6,000)
(4,000)
(2,000)
-
2,000
4,000
6,000
8,000
Unrealized Gain
Unrealized Loss
Cash Value
Net Gain (Loss) - Unlevered
Realized Loss
Here the future stock price is listed from 0 to 50 on the horizontal axis, 
and the net profit or loss to this position is listed on the vertical axis. Obvious-
ly, any gain or loss would be unrealized unless Intel’s stock price went to zero, 
at which point the total position would only be worth whatever spare cash we 
had. The black profit and loss line is straight—the position will lose or gain on 
a one-for-one basis with the price of the stock, so our leverage is 1.0.
Now that we have a sense of what the graph for a straight stock 
position looks like, let’s take a look at a few different option positions. 
When I drew the data for this example, the following 540-day expiration 
call options were available:
Strike Price Ask Price Delta
15 8.00 0.79
22 2.63 0.52
25 1.43 0.35
Let’s start with the ITM option and construct a simple-minded posi-
tion that attempts to buy as many of these option contracts as possible with 
the $5,000 we have reserved for this investment. We will pay $8 per share