56 lines
1.7 KiB
Plaintext
56 lines
1.7 KiB
Plaintext
Cl,apter 3: Call Buying 111
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TABLE 3-2.
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Comparison of the four alternative strategies.
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If the underlying stock then. . . The best tactic was. . . And the worst tactic was ...
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continues to rise dramatic
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ally ...
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"roll up"
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rises moderately above the do nothing
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next strike ...
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remains relatively unchanged . .. spread
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falls back below the original liquidate
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strike ...
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TABLE 3-3.
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Results at expiration.
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XYZ Price at "Roll-up" "Do Nothing"
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Expiration Profit Profit
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50 or below $ 0 -$ 300(W)
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53 0(W) 0(W)
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56 0(W) + 300
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60 0(W) + 700
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63 + 600(W) + 1,000(B)
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67 + 1,400(B) + 1,400(B)
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70 + 2,000(B) + 1,700
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liquidate
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liquidate or "roll up"
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"roll up"
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do nothing
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"Spread"
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Profit
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$ 0
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+ 300
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+ 600(B)
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+ 1,000(B)
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+ 1,000(B)
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+ 1,000
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+ 1,000
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Liquidating
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Profit
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+$600(B)
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+ 600(B)
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+ 600(B)
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+ 600
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+ 600(W)
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+ 600(W)
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+ 600(W)
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Note that each of the four tactics proves to be the best tactic in one case or another,
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but that the spread tactic is never the worst one. Tables 3-2 and 3-3 represent the
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results from holding until expiration. For those who prefer to see the actual numbers
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involved in making these comparisons between the four tactics, Table 3-3 summa
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rizes the potential profits and losses of each of the four tactics using the prices from
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the example above. 'W" indicates that the tactic is the worst one at that price, and
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"B" indicates that it is the best one.
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There are, of course, modifications that an investor might make to any of these
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tactics. For example, he might decide to sell out half of his long call position, recov
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ering a major part of his original cost, and continue to hold the remainder of the long
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calls. This still leaves room for further appreciation. |