23 lines
1.4 KiB
Plaintext
23 lines
1.4 KiB
Plaintext
ler 20: The Sale of a Straddle
|
||
GURE 20-2.
|
||
ked straddle sale.
|
||
307
|
||
Stock Price at Expiration
|
||
the stock at 52. If, however, he is planning to take other action that might involve
|
||
staying with the position if the stock goes to 55 or 56, he should allow enough collat
|
||
eral to be able to finance that action. If the stock never gets that high, he will have
|
||
excess collateral while the position is in place.
|
||
SELECTING A STRADDLE WRITE
|
||
Ideally, one would like to receive a premium for the straddle write that produces a
|
||
profit range that is wide in relation to the volatility of the underlying stock. In the
|
||
example above, the profit range is 38 to 52. This may or may not be extraordinarily
|
||
wide, depending on the volatility of XYZ. This is a somewhat subjective measure
|
||
ment, although one could construct a simple straddle writer's index that ranked strad
|
||
dles based on the following simple formula:
|
||
I d Straddle time value premium n ex= _______ ..._ ___ _
|
||
Stock price x Volatility
|
||
Refinements would have to be made to such a ranking, such as eliminating cases in
|
||
which either the put or the call sells for less than ¼ point ( or even 1 point, if a more
|
||
restrictive requirement is desired) or cases in which the in-the-money time premium
|
||
is small. Furthermore, the index would have to be annualized to be able to compare
|
||
straddles for different expiration months. More advanced selection criteria, in the |