| Market dATA | |
| DJ Index | 100 points |
| Prices | |
| Put 100 | $1,000 |
Strategy name:
Short Put option
Recommended use of strategy
Expectation of increase in DJ Index
Strategy components
Writing a Put option
Example: Short Put 100 at a price of $1,000
Expenses / Income from building the strategy (at start date)
Income of $1,000
Strategy graph:
Auxiliary table for building the profit line
|
DJ Index (Horizontal axis) |
(Fixed expense) / fixed income |
Variable expenses (Put contribution) |
Variable income |
Total profit / (loss) (Vertical axis) 2+3+4 |
|
|
|
|
|
|
|
50 |
$1,000 |
($5,000) |
– |
($4,000) |
|
60 |
$1,000 |
($4,000) |
– |
($3,000) |
|
70 |
$1,000 |
($3,000) |
– |
($2,000) |
|
80 |
$1,000 |
($2,000) |
– |
($1,000) |
|
90 |
$1,000 |
($1,000) |
– |
$0 |
|
100 |
$1,000 |
– |
– |
$1,000 |
|
110 |
$1,000 |
– |
– |
$1,000 |
|
120 |
$1,000 |
– |
– |
$1,000 |
|
130 |
$1,000 |
– |
– |
$1,000 |
|
140 |
$1,000 |
– |
– |
$1,000 |
Strategy analysis:
Source of loss
Loss arising from the Put option (when the DJ Index declines below the exercise index of 100 points). The loss increases as the index falls.
Source of profit
The profit arising from building the strategy – $1,000.
Break-even point
When the loss from the option reaches the income from writing the option ($1,000). This occurs at index 90.
