43 lines
2.6 KiB
Plaintext
43 lines
2.6 KiB
Plaintext
502
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A Complete Guide to the Futures mArket
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a short futures position more closely. (Sellers of deep in-the-money calls should be aware that longs
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may choose to exercise such options well before expiration. early exercise can occur if the poten-
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tial interest income on the premium is greater than the theoretical time value of the option for a
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zero interest rate assumption.) Short positions in deep out-of-the-money calls will prove profitable
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for the vast range of prices, but the maximum gain is small and the theoretical maximum loss is
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unlimited.
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Figure 35.4d compares each type of short call to a short futures position. The short at-the-money
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call position will be the most profitable strategy under stable market conditions and the middle-of-
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the-road strategy (relative to the other two types of calls) in rising and declining markets. The short
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out-of-the-money call will lose the least in a rising market, but it will also be the least profitable
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strategy if prices decline. The short in-the-money call is the type of call that has the greatest potential
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and risk and, as mentioned above, there is a strong resemblance between this strategy and an outright
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short position in futures.
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It should be emphasized that the comparisons in Figure 35.4d are based upon single-unit positions.
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However, as previously explained, these alternative strategies do not represent equivalent position
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sizes. Comparisons based on positions weighted equally in terms of some risk measure (e.g., equal
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delta values) would yield different empirical conclusions.
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tabLe 35.4d profit/Loss Matrix for Short Calls with Different Strike prices
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Dollar amount of premium received
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$1,050 $1,100 $1,150 $1,200 $1,250 $1,300 $1,350
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Call Call Call Call Call Call Call
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$15,520 $11,010 $7,010 $3,880 $1,920 $910 $450
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position profit/Loss at expiration
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Futures price at
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expiration ($/oz)
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Short Futures
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at $1,200
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In-the-Money
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at-the-
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Money Out-of-the Money
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$1,050 Call $1,100 Call a $1,150 Call $1,200 Call a $1,250 Call $1,300 Call a $500 Call
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1,000 $20,000 $15,520 $11,010 $7,010 $3,880 $1,920 $910 $450
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1,050 $15,000 $15,520 $11,010 $7,010 $3,880 $1,920 $910 $450
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1,100 $10,000 $10,520 $11,010 $7,010 $3,880 $1,920 $910 $450
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1,150 $5,000 $5,520 $6,010 $7,010 $3,880 $1,920 $910 $450
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1,200 $0 $520 $1,010 $2,010 $3,880 $1,920 $910 $450
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1,250 –$5,000 –$4,480 –$3,990 –$2,990 –$1,120 $1,920 $910 $450
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1,300 –$10,000 –$9,480 –$8,990 –$7,990 –$6,120 –$3,080 $910 $450
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1,350 –$15,000 –$14,480 –$13,990 –$12,990 –$11,120 –$8,080 –$4,090 $450
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1,400 –$20,000 –$19,480 –$18,990 –$17,990 –$16,120 –$13,080 –$9,090 –$4,550
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aThese calls are compared in Figure 35.4d. |