31 lines
1.7 KiB
Plaintext
31 lines
1.7 KiB
Plaintext
Long ATM Put
|
||
The beauty of the free market is that two people can study all the available
|
||
information on the same stock and come up with completely different
|
||
outlooks. First of all, this provides for entertaining television on the
|
||
business-news channels when the network juxtaposes an outspoken bullish
|
||
analyst with an equally unreserved bearish analyst. But differing opinions
|
||
also make for a robust marketplace. Differing opinions are the oil that
|
||
greases the machine that is price discovery. From a market standpoint, it’s
|
||
what makes the world go round.
|
||
It is possible that there is another trader, Mick, in the market studying
|
||
Disney, who arrives at the conclusion that the stock is overpriced. Mick
|
||
believes the stock will decline in price over the next three weeks. He
|
||
decides to buy one Disney March 35 put at 0.80. In this example, March has
|
||
44 days to expiration.
|
||
Mick initiates this long put position to gain downside exposure, but along
|
||
with his bearish position comes option-specific risk and opportunity. Mick
|
||
is buying the same month and strike option as Kim did in the first example
|
||
of this chapter: the March 35 strike. Despite the different directional bias,
|
||
Mick’s position and Kim’s position share many similarities. Exhibit 4.13
|
||
offers a comparison of the greeks of the Disney March 35 call and the
|
||
Disney March 35 put.
|
||
EXHIBIT 4.13 Greeks for Disney 35 call and 35 put.
|
||
Call Put
|
||
Delta 0.57 −0.444
|
||
Gamma0.1660.174
|
||
Theta −0.013−0.009
|
||
Vega 0.0480.048
|
||
Rho 0.023−0.015
|
||
The first comparison to note is the contrasting deltas. The put delta is
|
||
negative, in contrast to the call delta. The absolute value of the put delta is
|
||
close to 1.00 minus the call delta. The put is just slightly OTM, so its delta |