25 lines
1.2 KiB
Plaintext
25 lines
1.2 KiB
Plaintext
212 • The Intelligent Option Investor
|
||
setting $50 aside in an escrow account you can’t touch and promising that
|
||
you will buy the stock with the escrow funds in the future if requested to
|
||
do so? From a risk perspective, “very little” is the answer.
|
||
Short calls are more complicated, but I will discuss the leverage car -
|
||
ried by them using elements of the structure I set forth in Chapter 8. In the
|
||
following overviews, I add one new line item to the tables that details the
|
||
margin requirements of the positions.
|
||
Intelligent option investors accept exposure when the market over -
|
||
estimates the likelihood of a valuation that the investor believes is not a
|
||
rational outcome. In graphic terms, this means that either one or both of
|
||
the investor’s best- and worst-case valuation scenarios lie well within the
|
||
Black-Scholes-Merton model (BSM) cone.
|
||
Simple (one-option) strategies to accept exposure include
|
||
1. Short put
|
||
2. Short call (call spread)
|
||
Complex (multioption) strategies to accept exposure include the following:
|
||
1. Short straddle
|
||
2. Short strangle
|
||
Jargon introduced in this chapter includes the following:
|
||
Margin Put-call parity
|
||
Early exercise Cover (a position)
|
||
Writing (an option)
|
||
Short Put
|
||
RED |