38 lines
2.1 KiB
Plaintext
38 lines
2.1 KiB
Plaintext
510A COMPleTe gUIde TO THe FUTUreS MArKeT
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Comment. The short put is a bullish position with a maximum potential gain equal to the premium
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received for selling the put and unlimited risk. However, in return for assuming this unattractive
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maximum reward/maximum risk relationship, the seller of a put enjoys a greater probability of real-
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izing a profi t than a loss. Note that the short at-the-money put position will result in a gain as long as
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the futures price at the time of the option expiration is not below the futures price at the time of the
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option initiation by an amount greater than the premium level ($38.70/oz in our example). However,
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the maximum possible profi t (i.e., the premium received on the option) will only be realized if the
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futures price at the time of the option expiration is above the prevailing market price at the time the
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option was sold (i.e., the strike price). The short put position is appropriate if the trader is modestly
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bullish and views the probability of a large price decline as being very low . If, however, the trader
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anticipated a large price advance, he would probably be better off buying a call or going long futures.
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Strategy 6b: Short put (Out-of-the-Money)
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example . Sell August $1,100 gold futures put at a premium of $10.10 /oz ($1,010), with August gold
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futures trading at $1,200/oz. (See Table 35.6 b and Figure 35.6 b .)
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Comment. The seller of an out-of-the-money put is willing to accept a smaller maximum gain (i.e.,
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premium) in exchange for increasing the probability of gain on the trade. The seller of an out-of-the-
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money put will retain the full premium received as long as the futures price does not decline by an
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FIGURE 35.6a Profi t/loss Profi le: Short Put (At-the-Money)
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Price of August gold futures at option expiration ($/oz)
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Futures price at time
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of position initiation
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and strike price
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Breakeven price
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= $1,161.30
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Profit/loss at expiration ($)
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1,000
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−10,000
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−12,500
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5,000
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2,500
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−2,500
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−5,000
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−7,500
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0
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−15,000
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−17,500
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1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400 |