35 lines
1.5 KiB
Plaintext
35 lines
1.5 KiB
Plaintext
Chapter 40: Advanced Concepts
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FIGURE 40-9.
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XYZ straddle buy.
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Cl)
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8000
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7000
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6000
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5000
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4000
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~ 3000
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~ 2000
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! 1000
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01------------------------
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-1000
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-2000
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-3000 At January Expiration
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Stock Price
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871
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some of the other risk measurements are considered. Consequently, one cannot
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blithely go around establishing delta neutral positions and ignoring them, for
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they may have significant market risk as certain factors change.
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For example, it is obvious to the naked eye that the two positions described in
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the previous section - the ratio spread and the long straddle - are not alike at all,
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but both are delta neutral. If one incorporates the usage of some of the other risk
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measurements into his position, he will be able to quantify the differences between
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"neutral" strategies. The sale of a straddle will be used to examine how these vari
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ous factors work.
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Positions with naked options in them have negative position gamma. This
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means that as the underlying security moves, the position will acquire traits opposite
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to that movement: If the security rises, the position becomes short; if it falls, the posi
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tion becomes long. This description generally fits any position with naked options,
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such as a ratio spread, a naked straddle, or a ratio write.
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Example: XYZ is at 88. There are three months remaining until July expiration, and
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the volatility of XYZ is 30%. Suppose 100 July 90 straddles are sold for 10 points -
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the put and the call each selling for 5. Initially, this position is nearly delta neutral, as |