27 lines
1.3 KiB
Plaintext
27 lines
1.3 KiB
Plaintext
342 Part Ill: Put Option Strategies
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FIGURE 23-2.
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Put buy and call credit (bear) spread.
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+$1,000 Halfway to Expiration
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/
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Stock
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0 60 110
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-e a.
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-$1,000 At Expiration
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-$2,000
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The curved line on Figure 23-2 shows how the three-way spread would behave
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if one looked at it halfway to its expiration date. In that case, it has a curved appear
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ance much like the outright purchase of a put option.
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Thus, this strategy could be appealing to bearishly-oriented traders, especially
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when the options are expensive. It might have certain advantages over an outright put
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purchase in that case, but it does require a larger margin investment and has theo
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retically larger risk.
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A SIMPLE FOLLOW-UP ACTION
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FOR BULL OR BEAR SPREADS
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Another way of combining puts and calls in a spread can sometimes be used when
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one has a bull or bear spread already in place. Suppose that one owns a call bull
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spread and the underlying stock has advanced nicely. In fact, it is above both of the
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strikes used in the spread. However, as is often the case, the bull spread may not have
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widened out to its maximum profit potential. One can use the puts for two purposes
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at this point: (1) to determine whether the call spread is trading at a "reasonable"
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value, and (2) to try to lock in some profits. First, let's look at an example of the "rea
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sonable value" verification. |