34 lines
2.0 KiB
Plaintext
34 lines
2.0 KiB
Plaintext
266 Part Ill: Put Option Strategies
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TABLE 16-5.
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Results of adopting each of the five tactics.
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XYZ Price at "Roll Down" Do-Nothing Spread Liquidate Combine
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Expiration Profit Profit Profit Profit Profit
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30 + $3,000 (8) +$1,800 +$500 +$400 (W) +$1,500
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35 + 2,000 (8) + 1,300 + 500 + 400 (W) + 1,000
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41 + 800 (8) + 700 + 500 + 400 (W) + 400
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42 + 600 (8) + 600 (8) + 500 + 400 + 300 (W)
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43 + 400 + 500 (8) + 500 (8) + 400 + 200 (W)
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45 0(W) + 300 + 500 (8) + 400 0(W)
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46 0(W) + 200 + 400 (8) + 400 (8) O(W)
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48 0(W) 0(W) + 200 + 400 (8) 0(W)
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50 0 200 (W) 0 + 400 (8) 0
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54 0 200 (W) 0 + 400 (8) + 400 (8)
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60 0 200 (W) 0 + 400 + 1,000 (8)
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Note that each tactic is the best one under one of the scenarios, but that the spread
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tactic is never the worst of the five. The actual results of each tactic, using the figures
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from the example above, are depicted in Table 16-5, where B denotes best tactic and
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W denotes worst one.
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All the strategies are profitable if the underlying stock continues to fall dramat
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ically, although the "roll down," "do nothing," and combinations work out best,
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because they continue to accrue profits if the stock continues to fall. If the underly
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ing stock rises instead, only the combination outdistances the simplest tactic of all,
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liquidation.
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If the underlying stock stabilizes, the "do-nothing" and "spread" tactics work out
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best. It would generally appear that the combination tactic or the "roll-down" tactic
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would be the most attractive, since neither one has any risk and both could generate
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large profits if the stock moved substantially. The advantage for the spread was sub
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stantial in call options, but in the case of puts, the premium received for the out-of
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the-money put is not as large, and therefore the spread strategy loses some of its
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attractiveness. Finally, any of these tactics could be applied partially; for example, one
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could sell out half of a profitable long position in order to take some profits, and con
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tinue to hold the remainder. |