Option Basics, Session Vi: Married or Protective Puts and Collar Strategies. Guest speaker: Dan Sheridan Sheridan Options Mentoring

Transcription

1 Option Basics, Session Vi: Married or Protective Puts and Collar Strategies Guest speaker: Dan Sheridan Sheridan Options Mentoring

2 Disclaimers Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options, sent to you in previous communication. Additional copies may be obtained by calling TRADEKING at (877) 495-KING visiting or by downloading the file from the recourses tab on your screen. System response and access times may vary due to market conditions, system performance, and other factors. Margin trading involves risks and is not suitable for all accounts. Sheridan Options Mentoring (SOM) is a third party and does not represent TradeKing. SOM s content does not reflect the views of TradeKing and may not have been reviewed by TradeKing. TradeKing is not compensated by SOM. SOM assumes all benefits, risks and liabilities associated with SOM content. Market timing is a complex investment strategy which involves risk and may incur additional commission costs. Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. 2

3 Disclaimers Any strategies discussed and examples using actual securities and price data are strictly for illustrative and educational purposes only and are not to be construed as a recommendation, or solicitation to buy or sell securities. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing s systems, services or products. While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility, there is no guarantee that this forecast will be correct. The Greeks (Delta, Gamma, Theta, Vega, Rho) represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract. There is no guarantee that these forecasts will be correct. The projections or other information generated by TradeKing's tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results TradeKing Group, Inc. Securities offered through TradeKing, LLC. All rights reserved. TradeKing is a member of FINRA and SIPC. 3

4 Option Basics 3/14 Session 5: Cash-secured Puts 3/19 Session 6: Married/Protective Put; Collar Strategies 3/28 Session 7: Course Review Register:

5 Married puts and Collar strategies Q & A Speakers: M. Kahn and B. Overby Audio Help:

6 Married puts and Collar strategies Thanks for coming! Speakers: M. Kahn and B. Overby Audio Help:

7 Dan Sheridan Married Puts and Collars Mar 19, 2013 Page 7

8 Disclaimer Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling OPTIONS, or from The Options Clearing Corporation at The information in this presentation is provided solely for general education and information purposes. Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes. In order to simplify the computations, commissions and other transaction costs have not been included in the examples used in this presentation. Such costs will impact the outcome of the stock and options transactions and should be considered. Multiple leg strategies involve multiple commission charges. Investors should consult their tax advisor about any potential tax consequences. No statement within the presentation should be construed as a recommendation to buy or sell a security or to provide investment advice. Supporting documentation for any claims, statistics, or other technical data is available from Sheridan Options Mentoring at Chicago Board Options Exchange, Incorporated (CBOE) is not affiliated with Sheridan Options Mentoring. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-cboe product or service described in this presentation. Page 8

9 Protected Puts Page 9

10 LMN Protective Put Date: 10/25/2012 Price: $75.00 Price Trade Common Stock $ Delta 52.6 Gamma 9.5 Theta -1.6 Vega 11.9 MAR(54) Options Price Delta Trade 75 Puts $ Debit $ 7,700 DEBIT CALCULATION $ 7,500 $75.00 * 100 $ 200 Bought option premium $ 7,700 Total Debit Required Max gain unlimited Max loss $200 TradeKing commission of $10.55 not included Page 10

11 LMN Protective Put at T+0 (Today) Date: 10/25/2012 Price: $ Day Trade Page 11

12 LMN Protective Put at T+29 Date: 10/25/2012 Price: $ Day Trade Page 12

13 LMN Protective Put at Expiration (T+58) Date: 10/25/2012 Price: $ Day Trade Page 13

14 Married Put - OTM Date: 10/12/2012 XYZ Price: $ Price Trade Common Stock $ Options Price Delta Trade 145 Puts $ Delta 73.7 Gamma 3.9 Theta -4.0 Vega 15.4 NOV(36) Debit $ 15,150 DEBIT CALCULATION $ 15,000 $ * 100 $ 150 Bought option premium $ 15,150 Total Debit Required Max gain unlimited Max loss $650 TradeKing commission of $10.55 not included Page 14

15 Married Put - OTM Date: 10/12/2012 XYZ Price: $ Page 15

16 Married Put - ATM Date: 10/12/2012 XYZ Price: $ Price Trade Common Stock $ NOV(36) Options Price Delta Trade 150 Puts $ Delta 51.2 Gamma 4.9 Theta -4.9 Vega 18.8 Debit $ 15,350 DEBIT CALCULATION $ 15,000 $ * 100 $ 350 Bought option premium $ 15,350 Total Debit Required Max gain unlimited Max loss $350 TradeKing commission of $10.55 not included Page 16

17 Married Put - ATM Date: 10/12/2012 XYZ Price: $ Page 17

18 Married Put Compare OTM vs ATM Married Put - OTM Delta 73.7 Gamma 3.9 Theta -4.0 Vega 15.4 Married Put - ATM Delta 51.2 Gamma 4.9 Theta -4.9 Vega 18.8 Debit $ 15,150 Debit $ 15,350 DEBIT CALCULATION $ 15,000 $ * 100 $ 150 Bought option premium $ 15,150 Total Debit Required Max gain unlimited Max loss $650 TradeKing commission of $10.55 not included DEBIT CALCULATION $ 15,000 $ * 100 $ 350 Bought option premium $ 15,350 Total Debit Required Max gain unlimited Max loss $350 TradeKing commission of $10.55 not included Page 18

19 Married Put Compare OTM vs ATM Date: 10/12/2012 XYZ Price: $ Page 19

20 Collars Page 20

21 Zero Cost Collar Date: 10/12/2012 XYZ Price: $ Price Trade Common Stock $ NOV(36) Options Price Delta Trade 155 Calls $ Puts $ Delta 44.9 Gamma -0.2 Theta -0.8 Vega -0.7 Debit $ 15,000 DEBIT CALCULATION $ 15,000 $ * 100 $ (100) Sold option premium $ 100 Bought option premium $ 15,000 Total Debit Required Max gain $500 Max loss $500 TradeKing commission of $11.20 not included Page 21

22 Zero Cost Collar Date: 10/12/2012 XYZ Price: $ Page 22

23 Compare a Collar to a Covered Write - ITM Date: 10/12/2012 XYZ Price: $ Price Trade Common Stock $ NOV(36) Options Price Delta Trade 145 Calls $ Delta 27.3 Gamma -3.7 Theta 3.6 Vega Debit $ 14,400 DEBIT CALCULATION $ 15,000 $ * 100 shares $ (600) Sold option premium $ 14,400 Total Debit Required Max gain if assigned $100 Max loss if stock goes to zero $14,400 TradeKing commission of $10.55 not included Page 23

24 Covered Write - ITM Date: 10/12/2012 XYZ Price: $ Page 24

25 Compare Covered Write ITM to Collar Collar Delta 44.9 Gamma -0.2 Theta -0.8 Vega -0.7 Covered Write ITM Delta 27.3 Gamma -3.7 Theta 3.6 Vega Debit $ 15,000 Debit $ 14,400 DEBIT CALCULATION $ 15,000 $ * 100 $ (100) Sold option premium $ 100 Bought option premium $ 15,000 Total Debit Required Max gain $500 Max loss $500 TradeKing commission of $11.20 not included DEBIT CALCULATION $ 15,000 $ * 100 shares $ (600) Sold option premium $ 14,400 Total Debit Required Max gain if assigned $100 Max loss if stock goes to zero $14,400 TradeKing commission of $10.55 not included Page 25

26 Compare Covered Write ITM to Collar Page 26

27 Dan Sheridan Sheridan Options Mentoring, Inc. Next sessions: March 28 2pm ET Option Basics Course Review Page 27