35 lines
1.3 KiB
Plaintext
35 lines
1.3 KiB
Plaintext
176 • The Intelligent Option Investor
|
||
02468 10 12 14 16 18 20 22 24
|
||
Stock Price
|
||
Unlevered Investment (Full Allocation)
|
||
Gain (Loss) on Allocation
|
||
26 28 30 32 34 36 38 40 42 44 46 48 50(6,000)
|
||
(4,000)
|
||
(2,000)
|
||
-
|
||
2,000
|
||
4,000
|
||
6,000
|
||
8,000
|
||
Unrealized Gain
|
||
Unrealized Loss
|
||
Cash Value
|
||
Net Gain (Loss) - Unlevered
|
||
Realized Loss
|
||
Here the future stock price is listed from 0 to 50 on the horizontal axis,
|
||
and the net profit or loss to this position is listed on the vertical axis. Obvious-
|
||
ly, any gain or loss would be unrealized unless Intel’s stock price went to zero,
|
||
at which point the total position would only be worth whatever spare cash we
|
||
had. The black profit and loss line is straight—the position will lose or gain on
|
||
a one-for-one basis with the price of the stock, so our leverage is 1.0.
|
||
Now that we have a sense of what the graph for a straight stock
|
||
position looks like, let’s take a look at a few different option positions.
|
||
When I drew the data for this example, the following 540-day expiration
|
||
call options were available:
|
||
Strike Price Ask Price Delta
|
||
15 8.00 0.79
|
||
22 2.63 0.52
|
||
25 1.43 0.35
|
||
Let’s start with the ITM option and construct a simple-minded posi-
|
||
tion that attempts to buy as many of these option contracts as possible with
|
||
the $5,000 we have reserved for this investment. We will pay $8 per share |