option trading in future

Jun 28th, 2015
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A. T. Still University
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Using options as a hedge Using options to generate income Profit and loss diagrams with seasoned stock positions Improving on the market

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Option Strategies 1Basic OptionStrategies: CoveredCalls and ProtectivePutsOutline Usingoptions as a hedge Using options to generate income Profit and loss diagrams with seasonedstock positions Improving on the marketProtective Puts Definition Microsoftexample Logic behind the protective put Synthetic optionsDefinitionAprotective put is a descriptive term givento a long stock position combined with along put positionInvestors may anticipate a decline in the valueof an investment but cannot conveniently sellMicrosoft ExampleAssume you purchased Microsoft for $28.51Profit or loss ($)028.5128.51Stock price atoption expirationMicrosoft Example (contd) Assumeyou purchased a Microsoft APR 25put for $1.1023.9023.9001.1025Stock price atoption expirationMicrosoft Example (contd) Constructa profit and loss worksheet toform the protective put:Stock Price at Option Expiration0515253040Long stock@ $28.51-28.51-23.51-13.51-3.511.4911.49Long $25 put@ $1.1023.9018.908.90-1.10-1.10-1.10Net-4.61-4.61-4.61-4.610.3910.39Microsoft Example (contd) Theworksheet shows thatThe maximum loss is $4.61The maximum loss occurs at all stock prices of$25 or belowThe put breaks even somewhere between $25and $30 (it is exactly $29.61)The maximum gain is unlimitedMicrosoft Example (contd) Protectiv

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