63 lines
1.3 KiB
Plaintext
63 lines
1.3 KiB
Plaintext
52
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TABLE 2-10.
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Return if unchanged-margin account.
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Method 1
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Unchanged stock value (500
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shares at 43)
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Plus dividends
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Less margin interest charges
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(10% on $10,910 debit for
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6 months)
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Less debit balance
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Less net investment (margin)
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Net profit if unchanged
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margin
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$21,500
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+ 500
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545
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10,910
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- 9 470
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$ 1,075
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Part II: Call Option Strategies
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Method 2
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Profit if unchanged-cash
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Less margin interest charges -
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Net profit if unchanged
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margin
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$1,620
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545
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$1,075
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Return if unchanged = $ l ,075 = 11 .4%
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$9,470
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TABLE 2-11.
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Break-even point-margin write.
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Net margin investment
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Plus debit balance
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Less dividends
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Plus margin interest charges
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Total stock cost to expiration
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Divide by shares held
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Break-even point-margin
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TABLE 2-12.
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Percent downside protection-margin write.
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Initial stock price
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Less break-even price-margin
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Points of protection
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Divide by original stock price
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Equals percent downside protection-margin
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$ 9,470
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+ 10,910
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500
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+ 545
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$20,425
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+ 500
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40.9
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43
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-40.9
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2.1
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+43
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4.9%
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The return if exercised is 18.4% for the covered write using margin. In Example
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1 the return if exercised for a cash write was computed as 11.2%. Thus, the return if
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exercised from a margin write is considerably higher. In fact, unless a fairly deep in
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the-money write is being considered, the return on margin will always be higher than |