20 lines
1.3 KiB
Plaintext
20 lines
1.3 KiB
Plaintext
EXHIBIT 9.4 Apple bear call spread.
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The same three at-expiration outcomes are possible here as with the bull
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call spread: the stock can be above both strikes, between both strikes, or
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below both strikes. If the stock is below both strikes at expiration, both calls
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will expire worthless. The rights and obligations cease to exist. In this case,
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the entire credit of $440 is profit.
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If AAPL is between the two strike prices at expiration, the 395-strike call
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will be in-the-money. The short call will get assigned and result in a short
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stock position at expiration. The break-even price falls at $399.40—the
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short strike plus the $4.40 net premium. This is the price at which the stock
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will effectively be sold if assignment occurs.
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If Apple is above both strikes at expiration, it means both calls are in-the-
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money. Stock is sold at $395 because of assignment and bought back at
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$405 through exercise. This leads to a loss of $10 per share on the negative
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scalp. Factoring in the $4.40-per-share credit makes the net loss only $5.60
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per share with AAPL above $405 at February expiration.
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Just as the at-expiration diagram is the same but reversed, the greeks for
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this call spread will be similar to those in the bull call spread example
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except for the positive and negative signs. See Exhibit 9.5 .
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EXHIBIT 9.5 Apple 395–405 bear call spread. |