39 lines
1.9 KiB
Plaintext
39 lines
1.9 KiB
Plaintext
507
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OPTION TrAdINg STrATegIeS
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In a sense, the long in-the-money put position can be thought of as a short futures position with
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a built-in stop. This characteristic is an especially important consideration for speculators who
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typically employ protective stop loss orders on their positions—a prudent trading approach. A
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trader using a protective buy stop on a short position faces the frustrating possibility of the market
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advancing suffi ciently to activate his stop and subsequently breaking. The long in-the-money put
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position off ers the speculator an alternative method of limiting risk that does not present this
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danger. Of course, this benefi t does not come without a cost: as mentioned earlier, the buyer of an
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in-the-money put will gain slightly less than the outright short futures trader if the market declines
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and lose slightly more if the market advances moderately. However, if the trader is anticipating
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volatile market conditions, he might very well prefer a long in-the-money put position to a short
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futures position combined with a protective buy stop order. In any case, the key point is that the
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trader who routinely compares the strategies of buying an in-the-money put versus going short
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futures with a protective buy stop should enjoy an advantage over those traders who never consider
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the option-based alternative.
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Table 35.5 d summarizes the profi t/loss implications of various long put positions for a range of
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price assumptions. Note that as puts move deeper in-the-money, their profi t and loss characteristics
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increasingly resemble a short futures position.
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FIGURE 35.5c Profi t/loss Profi le: long Put (In-the-Money)
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Price of August gold futures at option expiration ($/oz)
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Futures
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price at time
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of position
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initiation
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Strike price
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Breakeven price
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= $1,191.30
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Profit/loss at expiration ($)
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1,000
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10,000
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−10,000
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−15,000
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5,000
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−5,000
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0
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15,000
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20,000
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1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400 |