36 lines
1.8 KiB
Plaintext
36 lines
1.8 KiB
Plaintext
504A COMPleTe gUIde TO THe FUTUreS MArKeT
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Comment. The long put is a bearish strategy in which maximum risk is limited to the premium paid
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for the option, while maximum gain is theoretically unlimited. However, the probability of a loss is
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greater than the probability of a gain, since the futures price must decline by an amount exceeding
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the option premium (as of the option expiration) in order for the put buyer to realize a profi t. Two
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specifi c characteristics of the at-the-money option are:
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1. The maximum loss will be realized only if futures are trading at or above their current level at
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the time of the option expiration.
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2. For small price changes, each $1 change in the futures price will result in approximately a $0.50
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change in the option price (except for options near expiration). Thus, for small price changes, a
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net short futures position is equivalent to approximately 2 put options in terms of risk.
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Strategy 5 b: Long put (Out-of-the-Money)
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example . Buy August $1,100 gold futures put at a premium of $10.10 /oz ($1,010). (The current
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price of August gold futures is $1,200/oz.) (See Table 35.5 b and Figure 35.5 b.)
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Comment. The buyer of an out-of-the-money put reduces his maximum risk in exchange for accept-
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ing a smaller probability that the trade will realize a profi t. By defi nition, the strike price of an out-of-
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the-money put is below the current level of futures. In order for the out-of-the-money put position
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Price of August gold futures at option expiration ($/oz)
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Futures price at time
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of position initiation
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and strike price
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Breakeven price = $1,161.30
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Profit/loss at expiration ($)
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1,000
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10,000
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7,500
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−5,000
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5,000
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−2,500
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2,500
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0
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17,500
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15,000
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12,500
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1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
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FIGURE 35.5a Profi t/loss Profi le: long Put (At-the-Money) |