23 lines
1.7 KiB
Plaintext
23 lines
1.7 KiB
Plaintext
477
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A put might more properly be called a stick. For the whole point of a put—its purpose, if you
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will—is that it gives its owner the right to force 100 shares of some godforsaken stock onto
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someone else at a price at which he would very likely rather not take it. So what you are really
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doing is sticking it to him.
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—Andrew T obias
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Getting By on $100,000 a Year (and Other Sad T ales)
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■ Preliminaries
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There are two basic types of options: calls and puts. The purchase of a call option on futures1 provides
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the buyer with the right, but not the obligation, to purchase the underlying futures contract at a speci-
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fied price, called the strike or exercise price, at any time up to and including the expiration date. 2 A put
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option provides the buyer with the right, but not the obligation, to sell the underlying futures contract
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at the strike price at any time prior to expiration. (Note, therefore, that buying a put is a bearish trade,
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while selling a put is a bullish trade.) The price of an option is called the premium, and is quoted in
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An Introduction to
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Options on Futures
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Chapter 34
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1 Chapters 34 and 35 deal specifically with options on futures contracts. However, generally speaking, analogous
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concepts would apply to options on cash (physical) goods or instruments (e.g., bullion versus gold futures).
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Some of the advantages of basing an option contract on futures as opposed to the cash asset are discussed in the
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next section.
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2 For some markets, the expiration date on the option and the underlying futures contract will be the same; for other
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markets, the expiration date on the option will be a specified date prior to the expiration of the futures contract. |