38 lines
1.1 KiB
Plaintext
38 lines
1.1 KiB
Plaintext
Chapter 34: Futures and Futures Options
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FIGURE 34-2.
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January soybean, ratio spread.
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90
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80
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70
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60
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50
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:!::
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40 0 ... a.. 30
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0 20 .le
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C 10
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~ 0
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-10
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-20
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-30
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575 625 650
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At Expiration
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Futures Price
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Points of maximum profit = Maximum downside loss
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+ Difference in strikes
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x Number of calls owned
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=-4½ + 50 X 2
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=95½
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Upside break-even price = Higher striking price
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700
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+ Maximum profit/Net number of naked calls
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= 650 + 95½/3
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= 681.8
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689
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These are the significant points of profitability at expiration. One does not care
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what the unit of trading is (for example, cents for soybeans) or how many dollars are
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involved in one unit of trading ($50 for soybeans and soybean options). He can con
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duct his analysis strictly in terms of points, and he should do so.
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Before proceeding into the comparisons beleen the backspread and the ratio
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spread as they apply to mispriced futures options, it should be pointed out that the seri
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ous strategist should analyze how his position will perform over the short term as well
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as at expiration. These analyses are presented in Chapter 36 on advanced concepts. |