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DEHRADUN
20
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14
-10
-20
-30
This strategy is used by a person Protected Put for Siemens for option
who is having a ling position in the
stock and is expecting the market expiring on 26th Aug 2010
not to move up significantly or to
Strike Profit & Payoff on
move sideways in the near term.
Price Premium Spot Price Payoff Loss Long Net payoff
Thus the investor can sell buy calls
620 17.95 595 -25 -7.05 25 17.95
and make money 620 equal to the
17.95 600 -20 -2.05 20 17.95
premium received.620 17.95 605 -15 2.95 15 17.95
620 17.95 610 -10 7.95 10 17.95
620 17.95 615 -5 12.95 5 17.95
620 17.95 620 0 17.95 0 17.95
620 17.95 625 0 17.95 -5 12.95
620 17.95 630 0 17.95 -10 7.95
620 17.95 635 0 17.95 -15 2.95
In this strategy, the long stock
620 17.95 640 0 17.95 -20 -2.05
position and short
620 put position
17.95 645 0 17.95 -25 -7.05
eventually makes620 the payoff 17.95 650 0 17.95 -30 -12.05
diagram look like
620 a short put
17.95 655 0 17.95 -35 -17.05
strategy. This 620
strategy can 17.95
be 660 0 17.95 -40 -22.05
exercised and investor can make
gain equal to the premium received
even if the stock price doesn’t
increase in market. Thus it is a
good strategy to make profits from
stocks which are not expected to
move up or rather expected to go
sideways.
Protected Put payout diagram for
Siemens
This strategy is used by an
30 investor who is neutral to bearish
20 on the stock prices. If the investor
10 believes that the prices will not fall
much and profits cannot be made
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14
on the short position of stocks.
-10 Thus the investor sells put options
-20 and get returns. If prices doesn’t
increase or move sideways the
-30
premium earned becomes the profit
-40 for the investor.
-50