49 lines
1.0 KiB
Plaintext
49 lines
1.0 KiB
Plaintext
18 • The Intelligent Option Investor
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5/18/2012
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5/20/2013 249 499
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Date/Day Count
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Stock Price
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749 999
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Breakeven Line: $45.00
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RED
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In this diagram, we are receiving a $5 premium payment in return for
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accepting exposure to the stock’s downside. As such, as long as the stock
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expires above $45, we will realize a profit on this investment.
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Visual Representation of Options Canceling Exposure
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Let’s take a look again at our visual representation of the risk and reward
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of a stock:
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5/18/2012
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-
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20
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120
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140
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180
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200
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5/20/2013 249 499
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Date/Day Count
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Stock Price
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749 999
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GREEN
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RED
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We bought this stock at $50 per share and will experience an unreal-
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ized gain if the stock goes up and an unrealized loss if it goes down. What
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might happen if we were to simultaneously buy a put, expiring in 365 days
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and struck at $50, on the same stock?
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Because we are purchasing a put, we know that we are gaining expo-
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sure to the downside. Any time we gain exposure, we shade the exposure |