67 lines
1.1 KiB
Plaintext
67 lines
1.1 KiB
Plaintext
Option Fundamentals • 21
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Going long a stock (i.e., buying
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a stock).
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Going short a stock (i.e., short
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selling a stock).
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If you want to gain exposure to a stock’s upside potential by going
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long (left-hand diagram), you also must simultaneously accept exposure to
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the stock’s downside risk. Similarly, if you want to gain exposure to a stock’s
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downside potential by going short (right-hand diagram), you also must ac-
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cept exposure to the stock’s upside risk.
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In contrast, option investors are completely unrestrained in their
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ability to choose what directionality to accept or gain. An option investor
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could, for example, very easily decide to establish exposure to the direc-
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tionality of a stock in the following way:
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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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Why an investor would want to do something like this is completely beyond
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me, but the point is that options are flexible enough to allow this type of a
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crazy structure to be built. |