49 lines
1.6 KiB
Plaintext
49 lines
1.6 KiB
Plaintext
650
|
||
ZYX
|
||
ABX
|
||
ZYX June 175P
|
||
ABX June 1 80P
|
||
Profit
|
||
165
|
||
168
|
||
10
|
||
12
|
||
+$1,000
|
||
170
|
||
173
|
||
5
|
||
7
|
||
+$1,000
|
||
Part V: Index Options and Futures
|
||
Price at Expiration
|
||
175 180 185
|
||
178 183 188
|
||
0 0 0
|
||
2 0 0
|
||
+$1,000 0 0
|
||
This picture indicates that the position is neutral to bearish, since it makes
|
||
money even if the indices are unchanged. However, contrast this with the situation
|
||
in which the ZYX falls to a level 5 points below the ABX by expiration.
|
||
Price at Expiration
|
||
ZYX 165 170 175 180 185
|
||
ABX 170 175 180 185 190
|
||
ZYX June 175P 10 5 0 0 0
|
||
ABX June 1 80P 10 5 0 0 0
|
||
Profit 0 0 0 0 0
|
||
In this case, the spread has no potential for profit at all, even if the market col
|
||
lapses. Thus, even a bearish spread like this might not prove profitable if there is an
|
||
adverse movement in the relationship of the indices.
|
||
Finally, observe what happens if the ZYX rallies so strongly that it catches up to
|
||
the ABX.
|
||
Price at Expiration
|
||
ZYX 165 170 175 180 185
|
||
ABX 165 170 175 180 185
|
||
ZYX June 175P 10 5 0 0 0
|
||
ABX June 1 80P 15 10 5 0 0
|
||
Profit +$2,500 +$2,500 +$2,500 +$2,500 +$2,500
|
||
These tables can be called "sliding scale" tables, because what one is actually
|
||
doing is showing a different set of results by sliding the ABX scale over slightly each
|
||
time while keeping the ZYX scale fixed. Note that in the above two tables, the ZYX
|
||
results are unchanged, but the ABX has been slid over slightly to show a different
|
||
result. Tables like this are necessary for the strategist who is doing spreads in options
|
||
with different underlying indices or is trading inter-index spreads. |