65 lines
1.0 KiB
Plaintext
65 lines
1.0 KiB
Plaintext
Chapter 7: Bull Spreads 173
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Moreover, there is a break-even point that always lies between the two striking prices
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at expiration. In this example, the break-even point is 32. All bull spreads have prof
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it graphs with the same shape as the one shown in Figure 7-1 when the expiration
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dates are the same for both calls.
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The investor who establishes this position is bullish on the underlying stock, but
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is generally looking for a way to hedge himself. If he were rampantly bullish, he
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TABLE 7-1.
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Results at expiration of bull spread.
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XYZ Price of
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Expiration
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25
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30
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32
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35
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40
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45
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FIGURE 7-1.
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Bull spread.
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c: +$300
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.Q
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~
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-~
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w
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October 30
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Profit
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-$ 300
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- 300
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100
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+ 200
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+ 700
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+ 1,200
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October 35
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Profit
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+$100
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+ 100
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+ 100
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+ 100
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- 400
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- 900
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,,
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,,,'
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;ff
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,,,'
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,,'
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iii
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~
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,,,,'
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$01---------'----J...__.... _ ___. _____ _
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30 3:?,,' 35
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0 ::: -$200
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e 0..-$300
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, ,
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..------,,,,,'
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Call Purchase
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•-----------,'
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Stock Price at Expiration
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Total
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Profit
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-$200
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- 200
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0
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+ 300
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+ 300
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+ 300 |