... Exchange-traded option transactions,
on the other hand, can be consummated in seconds.
The introduction of FLEX options blurred the line between exchange-
traded and OTC options. FLEX options are options ... something,
which could be:
1. A stock, like 100 shares of Citibank stock. (Note that options on stocks
are always for 100 shares of the underlying stock. Options on fu...
... in foreign interest rates. This
is only used in foreign exchange options. It has no impact on any other
options. Foreign exchange options are affected by phi because options are
priced on the forward ... 53 .62 0.080 −9.93 6. 56 2.71
55 0.51 19.28 0. 060 6. 55 4.53 1.00
60 0.08 4.07 0.020 −2.05 1.44 0.21
65 0.01 0.54 0.003 −0. 36 0. 26 0.03
c04 JWBK147-Smith May 8, 2008 9:48 Char...
... expiration. For example, assume you bought
OEX 580 options at 12 and the OEX was at 575. If the option expires and
c 06 JWBK147-Smith May 8, 2008 9:52 Char Count=
84 OPTION STRATEGIES
FIGURE 6. 5 IBM ... are
trading for $4 and the out-of-the-money options are trading for $2. This
means that you could have twice as many of the out-of-the-money options
as you could of...
... are trading for $4 and the out-of-the-money options are trading for
$2. This means that you could have twice as many of the out-of-the-money
options as you could of the at-the-money options. This ... far options is much greater than near options, and you will
be able to profit handsomely if the implied volatility moves significantly
higher.
The final consideration is liquidity. F...
... out-
of-the-money options is greater than the at-the-money options. You can sell
the out-of-the-money options and buy the at-the-money options, expecting
the volatility skew to go away or to be reduced.
For ... 2008 10:8 Char Count=
1 76 OPTION STRATEGIES
10
Price of Underlying Instrument
Profit
8
4
2
6
0
−2
6
−8
−10
−4
40
41
42
43
44
45
46
47
48
49
50
51
53
54
55
56...
... are trading for $4 and the out-of-the-money options are trading for
$2. This means that you could have twice as many of the out-of-the-money
options as you could of the at-the-money options. This ... 2008 10:3 Char Count=
1 16 OPTION STRATEGIES
3
Price of Underlying Instrument
Profit
2
0
−1
1
−2
−3
−5
6
−7
−4
40
41
42
43
44
45
46
47
48
49
50
51
53
54
55
56
57
58
59
60...
... out-of-the-money options is greater than the at-the-money options. You
can sell the out-of-the-money options and buy the at-the-money options,
expecting the volatility skew to go away or to be reduced.
For ... costs and that you will hold the write
for one month.
Example 10.1 Net investment required–Common
Cost of stock $1 96, 950
+ Stock commissions +1,300
− Options prem...