Fidelity Investments. Opportunities in a changing world using option November 6, 2018

Transcription

1 Fidelity Investments Opportunities in a changing world using option November 6, 2018

2 Disclosure Options involve risks and are not suitable for all investors. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker or from The Options Clearing Corporation at Futures trading is not suitable for all investors and involves risk of loss. The information in this presentation is provided solely for general education and information purposes. No statement within this presentation should be construed as a recommendation to buy or sell a security or future or to provide investment advice. Any strategies discussed, including examples using actual securities or futures price data, are strictly for illustrative and educational purposes only. In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all transactions and must be considered prior to entering into any transactions. Multiple leg strategies involve multiple commission charges. Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed. Past performance does not guarantee future results. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available from Cboe upon request. Cboe, Cboe Exchange, Inc., Cboe Volatility Index, CFE and VIX are registered trademarks and Cboe Futures Exchange, Cboe Short-Term Volatility Index, Cboe 3-Month Volatility Index, Cboe Mid-Term Volatility Index, Execute Success, RVX, SPX, The Options Institute VXST, VXN, VXV and VXMT are service marks of Cboe Exchange, Inc (Cboe). S&P 500 is a registered trademark of Standard & Poor's Financial Services, LLC and has been licensed for use by Cboe and Cboe Futures Exchange, LLC (CFE). Cboe's and CFE s financial products based on S&P indices are not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in such products. Russell 2000 is a registered trademark of Russell Investments, used under license. The NASDAQ-100 Index, NASDAQ-100, and NASDAQ are trademark or service marks of The NASDAQ Stock Market, Inc. (with which its affiliates are the "Corporations"). These marks are licensed for use by Cboe in connection with the trading of products based on the NASDAQ- 100 Index. The products have not been passed on by the Corporations as to their legality or suitability. The products are not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S). Cboe is not affiliated with Interactive Brokers. 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. Copyright 2018 Cboe Exchange, Inc. All rights reserved. 2

3 What s Trading? A little bit of this And a lot of that 3

4 Pricing Concepts Option Price Components Six Option Pricing Factors 4

5 Pricing Concepts Delta: Impact of underlying price Gamma: Change in delta Theta: Impact of time Vega: Impact of volatility 5

6 SPX Expected Range Example Converting the 1-year standard deviation: Underlying Price I.V. Days to Exp Days per year SPX Index Level 2,700 Days to Expiration 28 Implied Volatility 12% 2, = 90 6

7 Implied Volatility XYZ stock trading $50 How do some traders choose strike prices? What is the fair value ATM straddle implying? Strike Calls Puts 40 $10.60 $ $6.55 $ $ $2.10 = $ $1.25 $ $0.40 $ $0.10 $

8 Spread Opportunities - Examples 8

9 Bull Call Spread Example Stock XYZ at $50.00 Spread: buy 1 XYZ call $2.90 sell 1 XYZ call + $1.20 Position: long 1 XYZ call and short 1 XYZ call long XYZ call spread net debit = $1.70 or $ total 9

10 Bull Call Spread Example Max Profit $ Max Loss $ BEP $51.70 Break-even point lower strike + debit paid $ $1.70 = $

11 Bear Put Spread Example Stock XYZ at $55.00 Spread: buy 1 XYZ put $2.90 sell 1 XYZ put + $1.20 Position: long 1 XYZ put and short 1 XYZ put long XYZ put spread net debit = $1.70 or $ total 11

12 Bear Put Spread Example Max Profit $ BEP $53.30 Max Loss $ Break-even point higher strike - debit paid $ $1.70 = $

13 Bear Call Spread Example Stock XYZ at $50.00 Spread: sell 1 XYZ call + $2.90 buy 1 XYZ call - $1.20 Position: short 1 XYZ call and long 1 XYZ call short XYZ call spread net credit = $1.70 or $ total 13

14 Bear Call Spread Example Max Profit $ Max Loss $ BEP $ Break-even point: Lower strike + net credit 50 + $1.70 =

15 Summary When establishing any position have a 3-part forecast Underlying Time Volatility Recognize what the ATM straddle is implying Spreads, spread off risk to a certain degree 15

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