38 lines
1.9 KiB
Plaintext
38 lines
1.9 KiB
Plaintext
533
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OPTION TrAdINg STrATegIeS
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Price of August gold futures at option expiration ($/oz)
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Profit/loss at expiration ($)
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1,000
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10,000
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5,000
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−5,000
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−10,000
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0
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1,050 1,100 1,150 1,200 1,250
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Breakeven price
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= $1,122.40
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Breakeven price
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= $1,277 .60
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1,300 1,350 1,400
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−15,000
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Futures price at time
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of position initiation
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FIGURE 35.17 Profi t/loss Profi le: ratio Call Write—long Futures + Short 2 Calls (Similar to
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Short Straddle)
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Comment. The combination of 1 long futures contract and 2 short at-the-money calls is a balanced
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position in terms of delta values. In other words, at any given point in time, the gain or loss in the
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long futures contract due to small price changes (i.e., price changes in the vicinity of the strike price)
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will be approximately off set by an opposite change in the call position. (Over time, however, a mar-
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ket characterized by small price changes will result in the long futures position gaining on the short
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call position due to the evaporation of the time value of the options.) The maximum profi t in this
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strategy will be equal to the premium received for the 2 calls and will occur when prices are exactly
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unchanged. This strategy will show a net profi t for a wide range of prices centered at the prevailing
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price level at the time the position was initiated. However, the position will imply unlimited risk in
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the event of very sharp price increases or declines.
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The profi t/loss profi le for this strategy should look familiar—it is virtually identical to the short
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straddle position (see Strategy 35.8). The virtual equivalence of this strategy to the short straddle
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position follows directly from the previously discussed structure of a synthetic futures position:
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Ratio call wr itel ong f utures short calls
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=+ 2
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However, from the synthetic futures position relationship, we know that:
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Long f utures long call short put ≈+ |