Newbie question

Discussion in 'Options' started by trader60611, Apr 8, 2008.

  1. MTE

    MTE

    I'm not aware of any free source for that, I got it from the Bloomberg terminal.
     
    #11     Apr 11, 2008
  2. no it's minus, you sell it at 1.98 and bught it at 1.9755, so you have a gain of 0.005. You paid 0.03733 for the premium, minus the gain of 0.005, and that's how much you lost as the option expired worthless atm.

    all these decimals is giving me a headache, will use some simple numbers. again all this applies only at expiration when the cost of your options is just the intrinsic value - the difference between the strike and underlying price.

    say you buy the underlying at $95, buy the 100P at $15 (ITM)

    Your break even is the price paid for the underlying $95 + the premium paid for the put(expires worthless) $15 = $110. So your underlying needs to move from $95(entry) to $110 just to break even.

    Since the hedge is ITM, your max loss at expiration is when the underlying moves to ATM/ITM ($100 or lower) of your put.

    Just use one of them option at expiration graphs to get a visual. Once you have that, look at the underlying price vs what it is at now and ask yourself if this hedge is good or not. There is no free lunch.

    $120 +10
    $115 +5
    $110 0
    $105 -5
    $100 -10
    $95 -10
    $90 -10
    $85 -10
    ..
    $50 -10
     
    #12     Apr 12, 2008
  3. I see what you mean by the "minus"

    Net P/L of Long Stock and Put at Expiration =

    MAX(0,StrikePrice-CurrentPrice)+(CurrentPrice-EntryPrice)-Premium
     
    #13     Apr 12, 2008