61 lines
2.5 KiB
Plaintext
61 lines
2.5 KiB
Plaintext
531
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OPTION TrAdINg STrATegIeS
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It should be obvious that such risk-free profit opportunities will be limited in terms of
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both duration and magnitude. generally speaking, conversion and reverse conversion arbitrage
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will normally only be feasible for professional arbitrageurs who enjoy much lower transac-
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tion costs (commissions plus execution costs) than the general public. The activity of these
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arbitrageurs will tend to keep synthetic futures position prices about in line with actual futures
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prices.
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Strategy 16: Synthetic Short Futures (Long put + Short Call)
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example. Buy an August $1,300 gold futures put at a premium of $108.70/oz ($10,870) and simul-
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taneously sell an August $1,300 gold futures call at a premium of $9.10/oz ($910). (See Table 35.16
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and Figure 35.16.)
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Comment. As follows directly from the discussion of the previous strategy, a synthetic short futures
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position can be created by combining a long put and a short call with the same expiration date and the same
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strike price. In this example, the synthetic futures position based upon the $1,300 strike price options
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is $0.40 higher priced than the underlying futures contract. (Synthetic futures position = $1,300
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+ $9.10 − $108.70 = $1,200.40.) However, for reasons similar to those discussed in the previous
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strategy, much of the advantage of an implied synthetic futures position price versus the actual futures
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price typically disappears once transaction costs and interest income effects are incorporated into the
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evaluation. An arbitrage employing the synthetic short futures position is called a conversion and was
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detailed in the previous strategy.
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tabLe 35.16 profit/Loss Calculations: Synthetic Short Futures (Long put + Short Call)
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(1) (2) (3) (4) (5) (6) (7) (8)
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Futures
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price at
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expiration
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($/oz)
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premium of
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august $1,300
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Call at Initiation
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($/oz)
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Dollar
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amount of
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premium
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received
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premium of
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august $1,300
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put at Initiation
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($/oz)
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Dollar
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amount of
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premium
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paid
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Value of
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Call at
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expiration
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Value of
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put at
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expiration
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profit/Loss on
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position
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[(3) − (5) + (7) − (6)]
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1,000 9.1 $910 108.7 $10,870 $0 $30,000 $20,040
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1,050 9.1 $910 108.7 $10,870 $0 $25,000 $15,040
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1,100 9.1 $910 108.7 $10,870 $0 $20,000 $10,040
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1,150 9.1 $910 108.7 $10,870 $0 $15,000 $5,040
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1,200 9.1 $910 108.7 $10,870 $0 $10,000 $40
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1,250 9.1 $910 108.7 $10,870 $0 $5,000 –$4,960
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1,300 9.1 $910 108.7 $10,870 $0 $0 –$9,960
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1,350 9.1 $910 108.7 $10,870 $5,000 $0 –$14,960
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1,400 9.1 $910 108.7 $10,870 $10,000 $0 –$19,960 |