Options Trading for Dummies by Duarte Joe;

Author:Duarte, Joe; [Duarte, Joe]
Language: eng
Format: epub
Publisher: John Wiley & Sons, Incorporated
Published: 2021-09-06T00:00:00+00:00

Oct

60

35.00

0.35

–0.186

$65

60

37.50

1.05

–0.460

$245

Jan

150

35.00

1.35

–0.291

($35)

150

37.50

2.15

–0.440

$135

The Exercise Net Profit column is calculated by subtracting your net profit from your stock purchase price from the option breakeven. From Chapter 4, the breakeven for a put option is:

Put Strike Price – Put Purchase Premium = Put Breakeven

(Put Breakeven – Purchase Price) × 100 = Net Profit/Loss

Unless otherwise stated, the multiplier for a stock option is 100. When working with a combined position that includes 100 shares of stock, be sure to remember to incorporate this value in the formulas.

From this point, the actual option selected for the strategy is definitely a personal decision. You may prefer longer-term protection and include April put options in your review. You may only seek catastrophic coverage, in which case you may add strike prices below 35.00 as well.

To wrap up the example, the 37.50 strike should be selected. If you’re bearish through the entire month of October, the XYZ Jan 37.50 put option provides you with protection for the full time period.

Consider a variety of things when seeking protection for an existing stock position, including

Term for the protection (expiration month)

Level of protection (strike price and option price)

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