Post on 05-Jan-2016
description
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at end of holding period
Pro
fit
(in
dol
lars
)BUY STOCK
BUY STOCKDEC; S = $164BE = $164AT P = $180, = ($1600)
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at end of holding period
Pro
fit
(in
dol
lars
)
DEC; S = $164BE = $164AT P = $180,
SELL STOCK SHORT =( $1600)
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)BUY CALL
DEC; S = $165, C = $5.75BE = $164 + $5.75 = $170.75AT P = $180,
= $925
Maximum Loss = $575
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)BUY CALL: DIFFERENT EXERCISE PRICES
165
170
160
A higher strike price results in smaller gains on the upside but smaller losses on the downside
DEC JULY 160, 165, 170
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)SELL CALL
Maximum profit = $575
DEC JULY 165BE = $170.75AT P = $180, = ($925)
Maximum loss = infinity
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)SELL CALLDIFFERENT EXERCISE PRICES
DEC JULY 160, 165,170
160
165
170
A higher strike price results in smaller gains on the downside but smaller losses on the upside
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)BUY PUT
DEC JULY 165 P = $6BE = $159AT P = $150, = ($900)
MAXIMUM PROFIT = $1599
MAXIMUM LOSS = $600
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)BUY PUT: DIFFERENT EXERCISE PRICES
DEC JULY 160,165 170
A lower strike price results in smaller gains on the downside but smaller losses on the upside
160
165170
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)SELL PUT
DEC JULY 165 P = $6BE = $159AT P = $150, = ($900)
MAXIMUM PROFIT = $600
MAXIMUM LOSS = $15,900
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)SELL PUT: DIFFERENT EXERCISE PRICES
DEC JULY 160,165,170
165
160
170
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)
COVERED CALL
DEC JULY 165 C= $5.75 S = $164BE = $158.25
MAXIMUM PROFIT = $675
MAXIMUM LOSS = $15,825
(BUY STOCK)
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)
COVERED CALL: DIFFERENT EXERCISE PRICES
DEC JULY 160,165,170
165
160
170
A lower strike price offers the most downside protection but at the expense of more of the upside gain
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)PROTECTIVE PUT
Maximum Loss = $500
DEC JULY 165; P =$6; S = $164
Breakeven = $170
Maximum profit = infinity
OPTIONS
140 150 160 180170 190
0
500
1000
1500
2000
2500
-500
-1500
-2000
-1000
Stock price at expiration
Pro
fit
(in
dol
lars
)PROTECTIVE PUT; DIFFERENT EXERCISE PRICES
DEC JULY 165, 165, 170
A higher strike price offers the most downside protection but at the expense of more of the upside gain
160
165
170