39 lines
1.9 KiB
Plaintext
39 lines
1.9 KiB
Plaintext
501
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OPTION TrAdINg STrATegIeS
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Comment. For most of the probable price range, the profi t/loss characteristics of the short in-the-
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money call are fairly similar to those of the outright short 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 call will lose modestly less than the short futures position in
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an advancing market because the loss will be partially off set by the premium received for
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the call.
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2. The short in-the-money call will gain modestly more than the short futures position in a mod-
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erately declining market.
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3. In a very sharply declining market, the profi t potential on a short futures position is open-ended,
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whereas the maximum gain in the short in-the-money call position is limited to the total pre-
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mium received for the call.
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In eff ect, the seller of an in-the-money call chooses to lock in modestly better results for the prob-
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able price range in exchange for surrendering the opportunity for windfall profi ts in the event of a
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price collapse. generally speaking, a trader should only choose a short in-the-money call over a short
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futures position if he believes that the probability of a sharp price decline is extremely small.
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Table 35.4 d summarizes the profi t/loss results for various short call positions for a range of
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price assumptions. As can be seen, as calls move more deeply in-the-money, they begin to resemble
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FIGURE 35.4c Profi t/loss Profi le: Short Call (In-the-Money)
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Chart created using TradeStation. ©TradeStation T echnologies, Inc. All rights reserved.
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Price of August gold futures at option expiration ($/oz)
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Futures price at
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time of position
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initiation
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Strike price
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Breakeven price
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= $1210.10
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Profit/loss at expiration ($)
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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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0
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−20,000
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−15,000
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1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400 |