25 lines
1.7 KiB
Plaintext
25 lines
1.7 KiB
Plaintext
Strategy Sullllllary
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Except for arbitrage strategies and tax strategies, the strategies we have described
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deal with risk of market movement. It is therefore often convenient to summarize
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option strategies by their risk and reward characteristics and by their market out
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look-bullish, bearish, or neutral. Table A-1 lists all the risk strategies that were dis
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cussed and gives a general classification of their risks and rewards. If a strategist has
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a definite attitude about the market's outlook or about his own willingness to accept
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risks, he can scan Table A-1 and select the strategies that most closely resemble his
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thinking. The number in parentheses after the strategy name indicates the chapter in
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which the strategy was discussed.
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Table A-1 gives a broad classification of the various risk and reward potentials
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of the strategies. For example, a bullish call calendar spread does not actually have
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unlimited profit potential unless its near-tenn call expires worthless. In fact, all cal
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endar spread or diagonal spread positions have limited profit potential at best until
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the near-term options expire.
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Also, the definition of limited risk can vary widely. Some strategies do have a
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risk that is truly limited to a relatively small percentage of the initial investment-the
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protected stock purchase, for example. In other cases, the risk is limited but is also
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equal to the entire initial investment. That is, one could lose 100% of his investment
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in a short time period. Option purchases and bull, bear, or calendar spreads are
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examples.
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Thus, although Table A-1 gives a broad perspective on the outlook for various
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strategies, one must be aware of the differences in reward, risk, and market outlook
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when actually implementing one of the strategies.
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943 |