46 lines
2.2 KiB
Plaintext
46 lines
2.2 KiB
Plaintext
512
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A Complete Guide to the Futures mArket
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position. Whereas the short at-the-money put position reflects an expectation that prices will either
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rise or decline only slightly, the short out-of-the-money put merely reflects an expectation that prices
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will not decline sharply.
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Strategy 6c: Short put (In-the-Money)
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example. Sell August $1,300 gold futures put at a premium of $108.70/oz ($10,870), with August
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gold futures trading at $1,200/oz. (See Table 35.6c and Figure 35.6c.)
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Comment. For most of the probable price range, the profit/loss characteristics of the short in-the-
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money put are fairly similar to those of the outright long futures position. There are three basic dif-
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ferences between these two positions:
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1. The short in-the-money put will lose modestly less than the long futures position in a
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declining market because the loss will be partially offset by the premium received for
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the put.
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2. The short in-the-money put will gain modestly more than the long futures position in a moder-
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ately advancing market.
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3. In a very sharply advancing market, the profit potential on a long futures position is open-ended,
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whereas the maximum gain in the short in-the-money put position is limited to the total pre-
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mium received for the put.
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In effect, the seller of an in-the-money put chooses to lock in modestly better results for the
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probable price range in exchange for surrendering the opportunity for windfall profits in the
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event of a price explosion.
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generally speaking, a trader should only choose a short in-the-money
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put over a long futures position if he believes that the probability of a sharp price advance is
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extremely small.
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tabLe 35.6c profit/Loss Calculations: Short put (In-the-Money)
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(1) (2) (3) (4) (5)
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Futures price at
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expiration ($/oz)
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premium of august $1,300
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put at Initiation ($/oz)
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Dollar amount of
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premium received
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put Value at
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expiration
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profit/Loss on
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position [(3) – (4)]
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1,000 108.7 $10,870 $30,000 –$19,130
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1,050 108.7 $10,870 $25,000 –$14,130
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1,100 108.7 $10,870 $20,000 –$9,130
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1,150 108.7 $10,870 $15,000 –$4,130
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1,200 108.7 $10,870 $10,000 $870
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1,250 108.7 $10,870 $5,000 $5,870
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1,300 108.7 $10,870 $0 $10,870
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1,350 108.7 $10,870 $0 $10,870
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1,400 108.7 $10,870 $0 $10,870 |