26 lines
1.7 KiB
Plaintext
26 lines
1.7 KiB
Plaintext
the put becomes long stock, profiting with each tick higher up to $80, or
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losing with each tick lower to $75. If the 80 put is assigned, the effective
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price of the long stock will be $78.70. The assignment will “hit your sheets”
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as a buy at $80, but the 1.30 credit lowers the effective net cost to $78.70.
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If the stock is below $75 at option expiration, both puts will be ITM. This
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is the worst case scenario, because the higher-struck put was sold. At
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expiration, the 80 puts would be assigned, the 75 puts exercised. That’s a
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negative scalp of $5 on the resulting stock. The initial credit lessens the pain
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by 1.30. The maximum possible loss with ExxonMobil below both strikes
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at expiration is $3.70 per spread.
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The spread in this example is the flip side of the bear put spread of the
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previous example. Instead of buying the spread, as with the bear put, the
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spread in this case is sold.
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Exhibit 9.11 shows the analytics for the bull put spread.
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EXHIBIT 9.11 Greeks for ExxonMobil 75–80 bull put spread.
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Instead of having a short delta, as with the bear spread, the bull spread is
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long delta. There is negative theta with positive gamma and vega as XOM
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approaches the long strike—the 75s, in this case. There is also positive theta
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with negative gamma and vega around the short strike—the 80s.
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Exhibit 9.11 shows the characteristics that define the vertical spread. If
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one didn’t know which particular options were being traded here, this could
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almost be a table of greeks for either a 75–80 bull put spread or a 75–80
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bull call spread.
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Like the other three verticals, this spread can be a delta play or a theta
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play. A bullish trader may sell the spread if both puts are in-the-money.
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Imagine that XOM is trading at around $75. The spread will have a positive |