47 lines
1.4 KiB
Plaintext
47 lines
1.4 KiB
Plaintext
481
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AN INTrOduCTION TO OPTIONS ON FuTureS
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risk is limited is not worth very much, because the strike price is so far away from the prevailing
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futures price. As Figure 34.1 shows, the time value will be at a maximum at the strike price.
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2. time remaining until expiration. The more time remaining until expiration, the greater
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the time value of the option. This is true because a longer life span increases the probability
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of the intrinsic value increasing by any specifi ed amount prior to expiration. In other words,
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the more time until expiration, the greater the probable price range of futures. Figure 34.2
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illustrates the standard theoretical assumption regarding the relationship between time value
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and time remaining until expiration for an at-the-money option. Specifi cally, the time value is
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FIGURE 34.1 Theoretical Option Premium Curve
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Source: Chicago Board of Trade, Marketing department.
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Call Option
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Strike price
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Intrinsic value
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T -bond futures price130
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132
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134
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136
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138
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140
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Time value premium
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8
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6
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4
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2 Option premium
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Strike price
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Intrinsic
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value
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T-bond futures price
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124
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126
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128
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130
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8
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6
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4
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2 Option premium
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Put Option
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Time value premium
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FIGURE 34.2 Time Value decay
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Source: Options on Comex Gold Futures, published by Commodity
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exchange, Inc. (COMeX), 1982.
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Time value decay
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94 10
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Time remaining until expiration (months)
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Time value premium |