Files
ollama-model-training-5060ti/training_data/curated/text/ce32c753c9c8fd01a82b24f3856d718d8a3bac85cbce0a336368ff4170ae9449.txt

36 lines
2.2 KiB
Plaintext
Raw Permalink Blame History

This file contains invisible Unicode characters
This file contains invisible Unicode characters that are indistinguishable to humans but may be processed differently by a computer. If you think that this is intentional, you can safely ignore this warning. Use the Escape button to reveal them.
686 Part V: Index Options and Futures
The two theoretically attractive strategies are:
1. Buy out-of-the-money puts and sell at-the-money puts; or
2. Buy at-the-money calls and sell out-of-the-money calls.
One might just buy one cheap and sell one expensive option - a bear spread
with the puts, or a bull spread with the calls. However, it is better to implement these
spreads with a ratio between the number of options bought and the number sold.
That is, the first strategy involving puts would be a backspread, while the second
strategy involving calls would be a ratio spread. By doing the ratio, each strategy is a
more neutral one. Each strategy is examined separately.
BACKSPREAD/NG THE PUTS
The backspread strategy works best when one expects a large degree of volatility.
Implementing the strategy with puts means that a large drop in price by the under­
lying futures would be most profitable, although a limited profit could be made if
futures rose. Note that a moderate drop in price by expiration would be the worst
result for this spread.
Example: Using prices from the above example, suppose that one decides to estab­
lish a backspread in the puts. Assume that a neutral ratio is obtained in the following
spread:
Buy 4 January bean 550 puts 31/4
Sell 1 January bean 600 put at 28
Net position:
13 DB
28 CR
15 Credit
The deltas (see Table 34-2) of the options are used to compute this neutral ratio.
Figure 34-1 shows the profit potential of this spread. It is the typical picture for
a put backspread - limited upside potential with a great deal of profit potential for
large downward moves. Note that the spread is initially established for a credit of 15
cents. If January soybeans have volatile movements in either direction, the position
should profit. Obviously, the profit potential is larger to the downside, where there
are extra long puts. However, if beans should rally instead, the spreader could still
make up to 15 cents ($750), the initial credit of the position.
Note that one can treat the prices of soybean options in the same manner as he
would treat the prices of stock options in order to determine such things as break­
even points and maximum profit potential. The fact that soybean options are worth