34 lines
2.3 KiB
Plaintext
34 lines
2.3 KiB
Plaintext
Chapter 35: Futures Option Strategies for Futures Spreads 719
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Initial Final Net Profit/
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Position Price Price Loss
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Bought 5 calls 6.40 0 -$13,440
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Bought 5 puts 4.25 10.00 + 12,075
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Sold 3 heating oil futures .7100 .6400 + 8,820
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Bought 3 unleaded gas futures .5700 .5200 - 6,300
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Total profit: +$ 1,155
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In the final analysis, the fact that the intermarket spread collapsed to zero actu
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ally aided the option strategy, since the puts were the in-the-money option at expira
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tion. This was not planned, of course, but by being long the options, the strategist was
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able to make money when volatility appeared.
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INTRAMARKET SPREAD STRATEGY
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It should be obvious that the same strategy could be applied to an intramarket spread
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as well. If one is thinking of spreading two different soybean futures, for example, he
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could substitute in-the-money options for futures in the position. He would have the
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same attributes as shown for the intermarket spread: large potential profits if volatil
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ity occurs. Of course, he could still make money if the intramarket spread widens, but
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he would lose the time value premium paid for the options.
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SPREADING FUTURES AGAINST STOCK SECTOR INDICES
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This concept can be carried one step further. Many futures contracts are related to
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stocks - usually to a sector of stocks dealing in a particular commodity. For example,
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there are crude oil futures and there is an Oil & Gas Sector Index (XOI). There are
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gold futures and there is a Gold & Silver Index (XAU). If one charts the history of
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the commodity versus the price of the stock sector, he can often find tradeable pat
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terns in terms of the relationship between the two. That relationship can be traded
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via an intermarket spread using options.
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For example, if one thought crude oil was cheap with respect to the price of oil
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stocks in general, he could buy calls on crude oil futures and buy puts on the Oil &
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Gas (XOI) Index. One would have to be certain to determine the number of options
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to trade on each side of the spread, by using the ratio that was presented in Chapter
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31 on inter-index spreading. (In fact, this formula should be used for futures inter
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market spreading if the two underlying futures don't have the same terms.) Only now,
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there is an extra component to add if options are used - the delta of the options: |