24 lines
1.7 KiB
Plaintext
24 lines
1.7 KiB
Plaintext
212 Part II: Call Option Strategies
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FIGURE 11 • 1.
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Ratio call spread (2: 1 ).
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Stock Price at Expiration
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1. The downside risk or gain is predetermined in the ratio spread at expiration, and
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therefore the position does not require much monitoring on the downside.
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2. The margin investment required for a ratio spread is normally smaller than that
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required for a ratio write, since on the long side one is buying a call rather than
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buying the common stock itself.
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For margin purposes, a ratio spread is really the combination of a bull spread
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and a naked call write. There is no margin requirement for a bull spread other than
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the net debit to establish the bull spread. The net investment for the ratio spread is
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thus equal to the collateral required for the naked calls in the spread plus or minus
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the net debit or credit of the spread. In the example above, there is one naked call.
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The requirement for the naked call is 20% of the stock price plus the call premium,
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less the out-of-the-money amount. So the requirement in the example would be 20%
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of 44, or $880, plus the call premium of $300, less the one point that the stock is
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below the striking price - a $1,080 requirement for the naked call. Since the spread
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was established at a credit of one point, this credit can also be applied against the ini
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tial requirement, thereby reducing that requirement to $980. Since there is a naked
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call in this spread, there will be a mark to market if the stock moves up. Just as was
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recommended for the ratio write, it is recommended that the ratio spreader allow at
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least enough collateral to reach the upside break-even point. Since the upside break
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even point is 51 in this example, the spreader should allow 20% of 51, or $1,020, plus |