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Hi Ron:
Thanks for the reminder.
I guess when I was writing the previous post, I was preoccupied with the
potential loss side.
So here's the potential profit side, re: stocks and options.
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At 05:01 PM 03/22/99 -1000, Ron Augustine wrote:
>You should point out the Up-side profit potential, based on a reasonable
>increase in IBM over the next year-- both in the Stock and Option positions.
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Trading IBM stocks:
1. Buy 100 shares of IBM @ 150, total $15,000.
2. Buy 150 shares of IBM @ 120, total $18,000.
3. Buy 200 shares of IBM @ 100, TOTAL $20,000.
Total shares bought= 450; total $= 53,000.
Averge cost per share = 117.75.
What if stock goes up to ...
----------------------------
average future P/L P/L P/L
Cost price per shr $total (%)
------ ------- ------- ------ ---
117.75 120.00 2.25 1,013 2
117.75 125.00 7.25 3,263 6
117.75 130.00 12.25 5,513 10
117.75 135.00 17.25 7,763 15
117.75 140.00 22.25 10,013 19
117.75 145.00 27.25 12,263 23
117.75 150.00 32.25 14,513 27
117.75 155.00 37.25 16,763 32
117.75 160.00 42.25 19,013 36
117.75 165.00 47.25 21,263 40
117.75 170.00 52.25 23,513 44
117.75 175.00 57.25 25,763 49
117.75 180.00 62.25 28,013 53
117.75 185.00 67.25 30,263 57
117.75 190.00 72.25 32,513 61
117.75 195.00 77.25 34,763 66
117.75 200.00 82.25 37,013 70
(note: commission excluded from calculation)
Trading, say, IBM JAN2001 150 calls:
1. Buy 10 contracts @ 15, total $15,000.
2. Buy 15 contracts @ 12, total $18,000.
3. Buy 20 contracts @ 10, total $20,000.
Total contracts bought= 45; total $= 53,000.
Average cost per contract = 11.75
>From here, I use an options evaluation program and certain assumptions to
calculate possible options prices at various stock levels at a certain late
date.
1. Last options bought (20 @ $10) was this morning, assuming the stock was at
$100 (never mind if the ACTUAL price of IBM was different).
2. IBM zigzags upwards, until 6 months or so later (MAKE IT SEP 30, 1999), the
stock rises to a range from $120 to $200.
3. Based on the options evaluation program, on 99-09-30, the corresponding
option values relative to the stock will be:
45 cnts
P/L per P/L P/L
Stock Option contract $total (%)
----- ------ -------- ------ ----
120 13.875 2.125 9,563 18
125 16.125 4.375 19,688 37
130 18.625 6.875 30,938 58
135 21.250 9.500 42,750 81
140 24.000 12.250 55,125 104
145 27.000 15.250 68,625 129
150 30.000 18.250 82,125 155
155 33.375 21.625 97,313 184
160 36.750 25.000 112,500 212
165 40.250 28.500 128,250 242
170 43.750 32.000 144,000 272
175 47.500 35.750 160,875 304
180 51.375 39.625 178,313 336
185 55.250 43.500 195,750 369
190 59.250 47.500 213,750 403
195 63.250 51.500 231,750 437
200 67.500 55.750 250,875 473
(note: commission excluded from calculation)
DON'T FORGET THAT IF IBM DOES NOT GO UP, YOU LOSE IN BOTH STOCK AND
OPTIONS. BUT IN OPTIONS, THERE IS A DANGER OF EXPIRING TO $ 0, EVEN THOUGH
THEY ARE LEAPS.
Regards,
Wong
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