35 lines
1.9 KiB
Plaintext
35 lines
1.9 KiB
Plaintext
248 Part Ill: Put Option Strategies
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TABLE 15-1.
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Call and put options compared.
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XYZ XYZ Coll Coll XYZ Put Put
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Stock July 50 Intrinsic Time Value July 50 Intrinsic Time Value
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Price Coll Price Value Premium Put Price Value Premium
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40 1/2 0 1/2 93/4 10 -1/4*
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43 1 0 1 7 7 0
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45 2 0 2 6 5
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47 3 0 3 5 3 2
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50 5 0 5 4 0 4
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53 7 3 4 3 0 3
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55 8 5 3 2 0 2
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57 9 7 2 0
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60 101/2 10 1/2 1/2 0 l/2
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70 193/4 20 -1/4 * 1/4 0 1/4
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* A deeply in-the-money option may actually trade at a discount from intrinsic value in advance of
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expiration.
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of its options, both puts and calls. Moreover, the marketplace may at any time value
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options at a higher or lower volatility than the underlying stock actually exhibits.
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This is called implied volatility, as distinguished from actual volatility. Also, the put
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option is usually worth at least its intrinsic value at any time, and should be worth
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exactly its intrinsic value on the day that it expires. Figure 15-1 shows where one
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might expect the XYZ July 50 put to sell, for any stock price, if there are 6 months
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remaining until expiration. Compare this with the similar pricing curve for the call
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option (Figure 15-2). Note that the intrinsic value line for the put option faces in
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the opposite direction from the intrinsic value line for call options; that is, it gains
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value as the stock falls below the striking price. This put option pricing curve
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demonstrates the effect mentioned earlier, that a put option loses time value pre
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mium more quickly when it is in-the-money, and also shows that an out-of-the
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money put holds a great deal of time value premium.
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THE EFFECT OF DIVIDENDS ON PUT OPTION PREMIUMS
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The dividend of the underlying stock is a negative factor on the price of its call
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options. The opposite is true for puts. The larger the dividend, the nwre valuable the
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puts will be. This is true because, as the stock goes ex-dividend, it will be reduced in |