20 lines
1.1 KiB
Plaintext
20 lines
1.1 KiB
Plaintext
EXHIBIT 5.8 Harley-Davidson covered call.
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EXHIBIT 5.9 Greeks for Harley-Davidson covered call (per contract).
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Delta 0.591
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Gamma−0.121
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Theta 0.032
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Vega −0.066
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Taking It Off
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If the trade works out perfectly for Bill, 22 days from now Harley-Davidson
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will be trading right at $70. He’d profit on both delta and theta. If the trade
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isn’t exactly perfect, but still good, Harley-Davidson will be anywhere
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above $68.15 in 22 days. It’s the prospect that the trade may not be so good
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at March expiration that occupies Bill’s thoughts, but a trader has to hope
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for the best and plan for the worst.
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If it starts to trend, Bill needs to react. The consequences to the stock’s
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trending to the upside are not quite so dire, although he might be somewhat
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frustrated with any lost opportunity above the indifference point. It’s the
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downside risk that Bill will more vehemently guard against.
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First, the same IV/vega considerations exist as they did in the previous
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examples. In the event the trade is closed early, IV/vega may help or hinder
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profitability. A rise in implied volatility will likely accompany a decline in |