36 lines
1.4 KiB
Plaintext
36 lines
1.4 KiB
Plaintext
182 • The Intelligent Option Investor
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0 24681 01 21 41 61 82 02 22 4
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Stock Price
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Levered Strategy Overview
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Gain (Loss) on Allocation
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26 28 30 32 34 36 38 40 42 44 46 48 50(6,000)
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(4,000)
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(2,000)
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-
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4,000
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2,000
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6,000
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10,000
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12,000
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8,000 Unrealized Gain
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Unrealized Loss
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Cash Value
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Net Gain (Loss) - Levered
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Realized Loss
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Instrument Maximum-Loss Price Net Profit at Fair Value Estimate
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Stock $0 $1,472
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Option $15 (1.8 × stock loss) $3,803 (2.6 × stock profit)
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Three $800 option contracts represent $2,400 of capital or 48 percent of
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this allocation’s capital. Thus 48 percent of the capital was lost with a 34.8 per-
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cent move downward in the stock, generating a −1.4 times value for the options
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plus we add another −0.4 times value to represent the loss on the small stock
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allocation; together these generate the −1.8 times figure you see on the loss side.
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Of course, if the option loss is realized, we still own 100 shares, so the maximum
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loss will not be felt until the shares hit $0, as shown in the preceding diagram.
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For the remainder of this book I will describe leverage positions us-
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ing the two following terms: loss leverage and profit leverage . I will write
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these in the following way:
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− X.x
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Y.y
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where the first number will be the loss leverage ratio, and the second
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number will be the profit leverage ratio based on the preceding rules that |