33 lines
1.5 KiB
Plaintext
33 lines
1.5 KiB
Plaintext
6S0 Part V: Index Options and Futures
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Price at Expiration
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ZYX 165 170 175 180 185
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ABX 168 173 178 183 188
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ZYX June 175P 10 5 0 0 0
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ABX June 1 80P 12 7 2 0 0
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Profit +$1,000 +$1,000 +$1,000 0 0
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This picture indicates that the position is neutral to bearish, since it makes
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money even if the indices are unchanged. However, contrast this with the situation
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in which the ZYX falls to a level 5 points below the ABX by expiration.
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Price at Expiration
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ZYX 165 170 175 180 185
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ABX 170 175 180 185 190
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ZYX June 175P 10 5 0 0 0
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ABX June l 80P 10 5 0 0 0
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Profit 0 0 0 0 0
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In this case, the spread has no potential for profit at all, even if the market col
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lapses. Thus, even a bearish spread like this might not prove profitable if there is an
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adverse movement in the relationship of the indices.
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Finally, observe what happens if the ZYX rallies so strongly that it catches up to
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the ABX.
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Price at Expiration
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ZYX 165 170 175 180 185
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ABX 165 170 175 180 185
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ZYX June 175P 10 5 0 0 0
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ABX June 180P 15 10 5 0 0
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Profit +$2,500 +$2,500 +$2,500 +$2,500 +$2,500
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These tables can be called "sliding scale" tables, because what one is actually
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doing is showing a different set of results by sliding the ABX scale over slightly each
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time while keeping the ZYX scale fixed. Note that in the above two tables, the ZYX
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results are unchanged, but the ABX has been slid over slightly to show a different
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result. Tables like this are necessary for the strategist who is doing spreads in options
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with different underlying indices or is trading inter-index spreads. |