38 lines
1.9 KiB
Plaintext
38 lines
1.9 KiB
Plaintext
513
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OPTION TrAdINg STrATegIeS
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Table 35.6 d summarizes the profi t/loss results for various short put positions for a range of price
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assumptions. As can be seen, as puts move more deeply in the money, they begin to more closely
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resemble a long futures position. (As previously explained in the case of calls, sellers of deep in-the-
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money options should be cognizant of the real possibility of early exercise.) Short positions in deep
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out-of-the-money puts will prove profi table for the vast range of prices, but the maximum gain is
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small and the theoretical maximum loss is unlimited.
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Figure 35.6 d compares each type of short put to a long futures position. The short at-the-money
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put position will be the most profi table strategy under stable market conditions and the middle-of-
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the-road strategy (relative to the other two types of puts) in declining and rising markets. The short
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out-of-the-money put will lose the least in a declining market, but it will also be the least profi table
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strategy if prices advance. The short in-the-money put is the type of put that has the greatest potential
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and risk and, as mentioned above, there is a strong resemblance between this strategy and an outright
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long position in futures.
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It should be emphasized that the comparisons in Figure 35.6 d are based upon single-unit positions.
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However, as previously explained, these alternative strategies do not represent equivalent position
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sizes. Comparisons based on positions weighted equally in terms of some risk measure (e.g., equal
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delta values) would yield diff erent empirical conclusions.
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FIGURE 35.6c Profi t/loss Profi le: Short Put (In-the-Money)
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Price of August gold futures at option expiration ($/oz)
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Futures price
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at time of
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position initiation
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Breakeven price
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=$1,191.30
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Profit/loss at expiration ($)
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1,000
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10,000
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15,000
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−10,000
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5,000
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−5,000
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−15,000
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−20,000
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0
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1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
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Strike price |