36 lines
1.6 KiB
Plaintext
36 lines
1.6 KiB
Plaintext
234 Part II: Call Option Strategies
|
||
TABLE 13·1.
|
||
Profits and losses for reverse ratio spread.
|
||
XYZ Price at Profit on Profit on Total
|
||
July Expiration 1 July 40 2 July 45's Profit
|
||
35 +$ 400 -$ 200 +$ 200
|
||
40 + 400 200 + 200
|
||
42 + 200 200 0
|
||
45 100 200 300
|
||
48 400 + 400 0
|
||
55 - 1,100 + 1,800 + 700
|
||
70 - 2,600 + 4,800 + 2,200
|
||
spread portion is long the July 45 and short the July 40. This requires a $500 collat
|
||
eral requirement, because there are 5 points difference in the striking prices. The
|
||
credit of $200 received for the entire spread can be applied against the initial
|
||
requirement, so that the total requirement would be $300 plus commissions. There
|
||
is no increase or decrease in this requirement, since there are no naked calls.
|
||
Notice that the concept of a delta-neutral spread can be utilized in this strate
|
||
gy, in much the same way that it was used for the ratio call spread. The number of
|
||
calls to buy and sell can be computed mathematically by using the deltas of the
|
||
options involved.
|
||
Example: The neutral ratio is determined by dividing the delta of the July 45 into the
|
||
delta of the July 40.
|
||
Prices
|
||
XYZ common: = 43
|
||
XYZ July 40 call: 4
|
||
XYZ July 45 call:
|
||
Delta
|
||
.80
|
||
.35
|
||
In this case, that would be a ratio of 2.29:1 (.80/.35). That is, if one sold 5 July 40's,
|
||
he would buy 11 July 45's (or if he sold 10, he would then buy 23). By beginning with
|
||
a neutral ratio, the spreader should be able to make money on a quick move by the
|
||
stock in either direction.
|
||
The neutral ratio can also help the spreader to avoid being too bearish or too
|
||
bullish to begin with. For example, a spreader would not be bullish enough if he |