61 lines
2.9 KiB
Plaintext
61 lines
2.9 KiB
Plaintext
540
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A Complete Guide to the Futures mArket
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Strategy 20b: bull put Money Spread (Long put with Lower Strike
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price/Short put with higher Strike price)—Case 2
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example. Buy an August $1,100 gold futures put at a premium of $10.10/oz ($1,010) and simul-
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taneously sell an August $1,200 put at a premium of $38.70/oz ($3,870), with August gold futures
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trading at $1,200/oz. (See Table 35.20b and Figure 35.20b.)
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Comment. In contrast to Case 1, which involved two in-the-money puts, this strategy is based on
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a long out-of-the-money put versus a short at-the-money put spread. In a sense, this strategy can
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be viewed as a short at-the-money put position with a built-in stop. (The purchase of the out-of-
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the-money put serves to limit the maximum possible loss in the event of a large price decline.) This
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risk limitation is achieved at the expense of a reduction in the net premium received. This trade-off
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between risk exposure and the amount of premium received is illustrated in Figure 35.20b, which
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compares the outright short at-the-money put position to this spread strategy.
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Strategy 21: bear put Money Spread (Short put with Lower Strike
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price/Long put with higher Strike price)
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example. Sell an August $1,100 gold futures put at a premium of $10.10/oz ($1,010) and simul-
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taneously buy an August $1,150 put at a premium of $19.90/oz ($1,990), with August gold futures
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trading at $1,200/oz. (See Table 35.21 and Figure 35.21.)
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Comment. This is a debit bear spread using puts instead of calls. The maximum risk is equal to the
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difference between the premium paid for the long put and the premium received for the short put. The
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maximum gain equals the difference between the two strike prices minus the difference between
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the premiums. The maximum loss will occur if prices fail to decline to at least the higher strike price.
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The maximum gain will be achieved if prices decline to the lower strike price. The profit/loss profile of
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this spread is approximately equivalent to the profile of the bear call money spread (see Figure 35.19a).
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tabLe 35.20b profit/Loss Calculations: bull put Money Spread (Long put with Lower Strike price/Short put
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with higher Strike price); Case 2—Long Out-of-the-Money put/Short at-the-Money put
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(1) (2) (3) (4) (5) (6) (7) (8)
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Futures price
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at expiration
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($/oz)
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premium of
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august $1,100
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put ($/oz)
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Dollar
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amount of
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premium paid
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premium of
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august $1,200
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put ($/oz)
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Dollar amount
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of premium
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received
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Value of
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$1,100 put at
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expiration
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Value of
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$1,200 put at
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expiration
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profit/Loss on
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position
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[(5) − (3) + (6) − (7)]
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1,000 10.1 $1,010 38.7 $3,870 $10,000 $20,000 –$7,140
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1,050 10.1 $1,010 38.7 $3,870 $5,000 $15,000 –$7,140
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1,100 10.1 $1,010 38.7 $3,870 $0 $10,000 –$7,140
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1,150 10.1 $1,010 38.7 $3,870 $0 $5,000 –$2,140
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1,200 10.1 $1,010 38.7 $3,870 $0 $0 $2,860
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1,250 10.1 $1,010 38.7 $3,870 $0 $0 $2,860
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1,300 10.1 $1,010 38.7 $3,870 $0 $0 $2,860
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1,350 10.1 $1,010 38.7 $3,870 $0 $0 $2,860
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1,400 10.1 $1,010 38.7 $3,870 $0 $0 $2,860 |