17 lines
1.1 KiB
Plaintext
17 lines
1.1 KiB
Plaintext
Day Three
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Day three saw the stock price trending. It slowly drifted up $2. There would
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have been some judgment calls throughout this day. Again, delta-neutral
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trades are for active traders. Prepare to watch the market much of the day if
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implementing this kind of strategy.
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When the stock was at $41 a share, Mary decided to guard against further
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advances in stock price and hedged her delta. At that point, the position
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would have had a −2.80 delta. She bought 280 shares at $41.
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As the day progressed, the market proved Mary to be right. The stock rose
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to $42 giving the position a delta of −2.80 again. She covered her deltas at
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the end of the day by buying another 280 shares.
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Covering the negative deltas to get flat at $41 proved to be a smart move
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today. It curtailed an exponentially growing delta and let Mary take a
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smaller loss at $41 and get a fresh start. While the day was a loser, it would
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have been $280 worse if she had not purchased stock at $41 before the run-
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up to $42. This is evidenced by the fact that she made a $280 profit on the
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280 shares of stock bought at $41, since the stock closed at $42. |