Trading Index Options - download pdf or read online

By James B. Bittman

ISBN-10: 0786312300

ISBN-13: 9780786312306

Designed and written for lively investors who're drawn to functional details which may increase their effects, buying and selling Index innovations bargains tried-and-true concepts and not using a lot of conception and math. Bittman presents investors with the knowledge to guage functional events and deal with positions. one of the key good points: the fundamentals of index strategies, together with numerous spreads; the best way to fit ideas with forecasts; choices for wasting positions; the significance of rate habit and volatility. A windows-based software that gives a number of choice pricing and graphing is incorporated within the package deal.

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Sample text

Change in Index Level Table 3-3 illustrates how call and put values change when the price of the underlying index increases. 23. 26. Two important observations can be made about these changes. First, neither the 800 Call value nor the 800 Put value changed as much as the index level. If factors other than the price of the underlying remain constant, then option values change by less than the change in price of the underlying. 46. " Second, after the one-point change in the index level, the relationship of the call's time value to the put's time value remained constant.

Step 2 Create a profit and loss grid on which the diagram will be drawn. A profit and loss grid consists of a horizontal axis, X, and a vertical axis, Y. The horizontal axis must be sufficiently wide to accomodate an appropriate range of the underlying index. The vertical axis must be sufficiently long to account for potential profit and loss. Step 3 Select an index level and calculate the option's value at expiration. An option's value at expiration is its intrinsic value, which is either positive or zero.

M. m. m. a. a. a. a. a. a. M. settlement means that closing prices of stocks in the index on the last day of trading are used to determine the expiration settlement value of an index. -settled options is usually the third Friday of the expiration month. M. settlement means that opening prices on the morning after the last day of trading are used to determine the expiration settlement value of an index. -settled options is usually the Thursday before the third Friday of the expiration month. All in-the-money index options in the United States are currently subject to automatic exercise at expiration; therefore, it is not necessary for index option owners to be concerned about exercise procedures on the last day of trading.

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Trading Index Options by James B. Bittman


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