Remember that the three scenarios produce the following portoflios:
a. 100% cash/short put : 2,000 qcom + 1,400
b. covered strangle : 2,000 qcom - 2,350
c. buy/write : 1,800 qcom + 5,510
in a down market a) is definitely better than b) because you have the same number of shares but b) has a margin debit balance.
If the market really is under severe pressure, then a) and b) will suffer greater losses than c) since they have more shares.
At what point will the portfolio holdings of a) and b) be smaller than c)?
a) vs c)
2000 X + 1,400 = 1,800 X + 5,510
200 X = 4,110
x = 20.55
b) vs c)
2000 x - 2,350 = 1,880 X + 5,510
200 x = 7,860
x = 39.3
Therefore, the lines of a) and c) intersect at 20.55 and the lines of b) and c) intersect at 39.3 |
