1. Trade Options in Virtual Time
▸ You have $200 to invest. No Transactions Costs.
▸ All options are European (Size = 1 share of stock).
▸ Cash Flow Accounting is very important:
Buy ➔ Cash Outflow: - $Price*Number of Contracts
Sell ➔ Cash Inflow: +$Price *Number of Contracts
Residual ➔ Buy a Bond: -$10.50 (for example)
At end of month bond matures: +$10.50
(your residual earns 0% interest)
Trade Options in Virtual Time
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2. Trade Options in Virtual Time
Time 0 Values
OLD
NEW
STOCK %
OPTION
Exerc
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$18.35 60 2
$13.64 70
$10.07 80
KO--put
$8.05
$13.29
$19.67
Micsft--call
$85.00
$14.81 75
$9.26 85
$5.43 95
Micsft--put
$4.44
$8.83
$14.95
Trade Options in Virtual Time
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3. Trade Options in Virtual Time
Bullish #1
OLD
NEW
STOCK %
OPTION X
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$82.54
17.9%
$18.35
$22.54
22.8% 60
$13.64
$12.54
-8.1% 70
$10.07
$2.54
-74.8% 80
KO--put
$8.05
$0.00
-100.0%
$13.29
$19.67
Micsft--call
$85.00
$117.80
38.6%
$14.81
$42.80
189.0% 75
$9.26
$32.80
254.3% 85
$5.43
$22.80
320.3% 95
Micsft--put
$4.44
$8.83
$14.95
Trade Options in Virtual Time
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4. Trade Options in Virtual Time
Bullish #2
OLD
NEW
STOCK %
OPTION X
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$87.76
25.4%
$18.35
$27.76
51.3% 60
$13.64
$17.76
30.2% 70
$10.07
$7.76
-23.0% 80
KO--put
$8.05
$0.00
-100.0%
$13.29
$19.67
Micsft--call
$85.00
$106.25
25.0%
$14.81
$31.25
111.0% 75
$9.26
$21.25
129.5% 85
$5.43
$11.25
107.4% 95
Micsft--put
$4.44
$8.83
$14.95
Trade Options in Virtual Time
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5. Trade Options in Virtual Time
Bearish #1 (only 1 stock is bearish, do not know which one)
OLD
NEW
STOCK %
OPTION X
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$54.97
-21.5%
$18.35
$0.00
-100.0% 60
$13.64 70
$10.07 80
KO--put
$8.05
$5.03
-37.5%
$13.29
$15.03
13.1%
$19.67
$25.03
27.2%
Micsft--call
$85.00
$73.74
-13.2%
$14.81 75
$9.26 85
$5.43 95
Micsft--put
$4.44
$1.26
-71.7%
$8.83
$11.26
27.4%
$14.95
$21.26
42.2%
Trade Options in Virtual Time
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6. Trade Options in Virtual Time
Bearish #2 (only 1 stock is bearish, do not know which one)
OLD
NEW
STOCK %
OPTION X
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$66.35
-5.2%
$18.35
$6.35
-65.4% 60
$13.64
$0.00
-100.0% 70
$10.07 80
KO--put
$8.05
$13.29
$3.65
-72.6%
$19.67
$13.65
-30.6%
Micsft--call
$85.00
$73.81
-13.2%
$14.81 75
$9.26 85
$5.43 95
Micsft--put
$4.44
$1.19
-73.3%
$8.83
$11.19
26.6%
$14.95
$21.19
41.7%
Trade Options in Virtual Time
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7. Trade Options in Virtual Time
Bearish #3 (VERY Bearish)
Trade Options in Virtual Time
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8. Trade Options in Virtual Time
Markets Expect High Volatility. (Ex-post volatility turns out low)
OLD
NEW
STOCK %
OPTION X
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$68.26
-2.5%
$18.35
$8.26
-55.0% 60
$13.64
$0.00
-100.0% 70
$10.07 80
KO--put
$8.05
$13.29
$1.74
-86.9%
$19.67
$11.74
-40.3%
Micsft--call
$85.00
$86.62
1.9%
$14.81
$11.62
-21.5% 75
$9.26
$1.62
-82.5% 85
$5.43 95
Micsft--put
$4.44
$8.83
$14.95
$8.38
-44.0%
Trade Options in Virtual Time
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9. Trade Options in Virtual Time
Markets Expect High Volatility. (Ex-post volatility turns out low #2)
OLD
NEW
STOCK %
OPTION X
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$68.65
-1.9%
$18.35
$8.65
-52.9% 60
$13.64
$0.00
-100.0% 70
$10.07 80
KO--put
$8.05
$13.29
$1.35
-89.8%
$19.67
$11.35
-42.3%
Micsft--call
$85.00
$85.55
0.7%
$14.81
$10.55
-28.8% 75
$9.26
$0.55
-94.0% 85
$5.43 95
Micsft--put
$4.44
$8.83
$14.95
$9.45
-36.8%
Trade Options in Virtual Time
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10. Trade Options in Virtual Time
Bottom Straddle: {+C,+P}same K, or Bottom Strangle{+C(KH),+P(KL)}
OLD
NEW
STOCK %
OPTION X
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$56.22
-19.7%
$18.35
$0.00
-100.0% 60
$13.64 70
$10.07 80
KO--put
$8.05
$3.78
-53.0%
$13.29
$13.78
3.7%
$19.67
$23.78
20.9%
Micsft--call
$85.00
$101.69
19.6%
$14.81
$26.69
80.2% 75
$9.26
$16.69
80.3% 85
$5.43
$6.69
23.3% 95
Micsft--put
$4.44
$8.83
$14.95
Trade Options in Virtual Time
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11. Trade Options in Virtual Time
Bearish #2
OLD
NEW
STOCK %
OPTION X
Time to
PRICE
CHANGE
Price
Maturity
KO--call
$70.00
$53.73
-23.2%
$18.35
$0.00
-100.0% 60
$13.64 70
$10.07 80
KO--put
$8.05
$6.27
-22.2%
$13.29
$16.27
22.4%
$19.67
$26.27
33.5%
Micsft--call
$85.00
$75.96
-10.6%
$14.81
$0.96
-93.5% 75
$9.26 85
$5.43 95
Micsft--put
$4.44
$8.83
$9.04
2.3%
$14.95
$19.04
27.3%
Trade Options in Virtual Time
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12. Trade Options in Virtual Time
Thank you!
(a Favara)
Trade Options in Virtual Time
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