41 lines
2.5 KiB
Plaintext
41 lines
2.5 KiB
Plaintext
517
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OPTION TrAdINg STrATegIeSComment. The short straddle position will be profi table over a wide range of prices. The best outcome
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for a seller of a straddle is a totally unchanged market. In this circumstance, the seller will realize his
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maximum profi t, which is equal to the total premium received for the sale of the call and put. The short
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straddle position will remain profi table as long as prices do not rise or decline by more than the combined
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total premium of the two options. The seller of the straddle enjoys a large probability of a profi table trade,
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in exchange for accepting unlimited risk in the event of either a very sharp price advance or decline.
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This strategy is appropriate if the speculator expects prices to trade within a moderate range, but
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has no opinion regarding the probable market direction. A trader anticipating nonvolatile market con-
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ditions, but also having a price-directional bias, would be better off selling either calls or puts rather
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than a straddle. For example, a trader expecting low volatility and modestly declining prices should
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sell 2 calls instead of selling a straddle.
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Strategy 9: bullish “texas Option hedge” (Long Futures + Long Call) 2
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example . Buy August gold futures at $1,200 and simultaneously buy an August $1,200 gold futures
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call at a premium of $38.80 /oz ($3,880). (See Table 35.9 and Figure 35.9 .)
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FIGURE 35.8 Profi t/loss Profi le: Short Straddle (Short Call + Short Put)
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Profi t/loss Profi le: Short Straddle (Short Call + Short Put)
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Price of August gold futures at option expiration ($/oz)
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Breakeven price
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= $1,122.50
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Breakeven price
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= 1,277.50
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Profit/loss at expiration ($)
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1,000
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5,000
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10,000
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–10,000
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–15,000
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–5,000
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0
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1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
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Futures price at time
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of position initiation
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and call and put
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strike prices
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2 By defi nition, a hedge implies a futures position opposite to an existing or anticipated actual position. In com-
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modity trading, T exas hedge is a facetious reference to so-called “hedgers” who implement a futures position in the
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same direction as their cash position. The classic example of a T exas hedge would be a cattle feeder who goes long
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cattle futures. Whereas normal hedging reduces risk, the T exas hedge increases risk. There are many option strate-
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gies that combine off setting positions in options and futures. This strategy is unusual in that it combines reinforcing
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positions in futures and options. Consequently, the term T exas option hedge seems to provide an appropriate label. |