37 lines
2.2 KiB
Plaintext
37 lines
2.2 KiB
Plaintext
708 Part V: Index Options and Futures
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ably, the calendar spread will almost certainly lose money (points on the left-hand
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side of the figure, or top line of the table).
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Third, if March futures rise in price too far, the calendar spread could do poor
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ly. In fact, if March futures rally and the futures spread worsens, one could lose more
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than his initial debit (bottom left-hand point on figure). This is partly due to the fact
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that one is buying the March options back at a loss if March futures rally, and may
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also be forced to sell his May options out at a loss if May futures have fallen at the
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same time.
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Fourth, as might be expected, the best results are obtained if March futures
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rally slightly or remain unchanged and the futures spread also remains relatively
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unchanged (points in the upper right-hand quadrant of the figure).
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In Table 35-4, the far right-hand column shows how a futures spreader would
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have fared if he had bought May and sold March at 4 points May over March, not
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using any options at all.
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TABLE 35-4.
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Profit and loss from soybean call calendar.
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All Prices at March Option Expiration
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Futures Future
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Spread Calendar Spread Profit Spread
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(May-March) March Future Price: 574 584 594 604 614 Profit
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-24 -5.5 - 4.5 -3 -4.5 -11.5 -28
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-14 -4.5 3 -0.5 -1 -7 -18
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-4 -2.5 0 +3 +3.5 -1 - 8
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6 0 + 3 +7.5 +9 +5.5 + 2
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16 +7 + 11 +17 +19 +13 +12
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This example demonstrates just how powerful the influence of the futures
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spread is. The calendar spread profit is predominantly a function of the futures
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spread price. Thus, even though the calendar spread was attractive from the theo
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retical viewpoint of the option's prices, its result does not seem to reflect that theo
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retical advantage, due to the influence of the futures spread. Another important
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point for the calendar spreader used to dealing with stock options to remember is
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that one can lose more than his initial debit in a futures calendar spread if the spread
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between the underlying futures inverts.
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There is another way to view a calendar spread in futures options, however, and
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that is as a substitute or alternative to an intramarket spread in the futures contracts
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themselves. Look at Table 35-4 again and notice the far right-hand column. This is |