63 lines
1.3 KiB
Plaintext
63 lines
1.3 KiB
Plaintext
684 Part V: Index Options and Futures
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pattern. Mispricing is, of course, a statistically related term; it does not infer anything
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about the possible validity of takeover rumors.
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A significant amount of discussion is going to be spent on this topic, because the
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futures option trader will have ample opportunities to see and capitalize on this mis
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pricing pattern; it is not something that just comes along rarely. He should therefore
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be prepared to make it work to his advantage.
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Example: January soybeans are trading at 583 ($5.83 per bushel). The following
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prices exist:
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Strike
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525
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550
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575
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600
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625
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650
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675
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January beans: 583
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Call
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Price
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191/2
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11
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51/4
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31/2
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21/4
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Put
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Price
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Suppose one knows that, according to historic patterns, the "fair values" of these
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options are the prices listed in the following table.
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Strike
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525
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550
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575
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600
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625
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650
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675
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Call
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Price
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191/2
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11
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53/4
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31/2
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21/4
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Call
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Theo.
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Value
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21.5
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10.4
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4.3
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1.5
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0.7
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Put
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Put Theo.
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Price Value
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1/2 1.6
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31/4 5.4
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12 13.7
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28 27.6
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Notice that the out-of-the-money puts are priced well below their theoretical
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value, while the out-of-the-money calls are priced above. The options at the 575 and
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600 strikes are much closer in price to their theoretical values than are the out-of
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the-money options. |