49 lines
1.1 KiB
Plaintext
49 lines
1.1 KiB
Plaintext
14 • The Intelligent Option Investor
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5/20/2013 249 499
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ITM
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ATM
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OTM
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Date/Day Count
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Stock Price
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749 999
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GREEN
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As we will discuss in greater detail later, not only can an investor use
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options to gain exposure to a stock, but the investor also can choose to accept
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exposure to it. Accepting exposure means running the risk of a financial loss if
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the stock moves into an option’s range of exposure. If we were to accept expo-
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sure to the stock’s upside potential, we would graphically represent it like this:
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5/18/2012
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5/20/2013 249 499
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Date/Day Count
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Stock Price
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749 999
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RED
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Any time you see a shaded region labeled “red” on diagrams like this, you
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should take it to mean that the investor has accepted the risk of realizing a loss
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on the investment and should say that the investor has accepted exposure. Any
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time an option investor accepts exposure, he or she gets to receive premium
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up front in return for accepting the risk. In the preceding example, the investor
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has accepted upside exposure by selling a call option (a.k.a. a short call). |