interactive brokers webcast bullish spreads · fdx earnings . bull put spread . fdx reported...
TRANSCRIPT
Bullish Spreads
March 15, 2017
Interactive Brokers Webcast
2 CBOE OPTIONS INSTITUTE
Disclosure
Options involve risks and are not suitable for all investors. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker or from The Options Clearing Corporation at www.theocc.com<http://www.theocc.com>. The information in this presentation is provided solely for general education and information purposes. No statement within this presentation should be construed as a recommendation to buy or sell a security or to provide investment advice. Any strategies discussed, including examples using actual price data, are strictly for illustrative and educational purposes only. In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all transactions and must be considered prior to entering into any transactions. Investors should consult with their tax advisors to determine how the profit and loss on any particular strategy will be taxed. Past performance is not indicative of future results. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available from CBOE upon request. CBOE® and Chicago Board Options Exchange® are registered trademarks and CBOE Options Institute is a service mark of Chicago Board Options Exchange, Incorporated (CBOE). CBOE is not affiliated with Interactive Brokers. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-CBOE product or service described in this presentation. © 2017 CBOE. All rights reserved
3 CBOE OPTIONS INSTITUTE
Bullish Spreads
Outline
Bullish Vertical Spreads Trading Examples Summary / Q&A
4 CBOE OPTIONS INSTITUTE
Bullish Spreads
Examples
Bull Call Spread – Bull Put Spread –
Long 1 XYZ 45 Call at 6.50 Short 1 XYZ 50 Call at 4.00
Pay Debit of 2.50
Long 1 XYZ 35 Put at 2.00 Short 1 XYZ 40 Put at 5.50
Receive Credit of 3.50
5 CBOE OPTIONS INSTITUTE
Bullish Spreads
Call Spread Example
XYZ Trading at 44.00 – Bullish outlook for XYZ
Target price of 50.00 in 45 Days
45 Day Option Pricing
Buy 1 45 Call at 1.80 Sell 1 50 Call at 0.45
Net Cost = 1.35
Bid Ask 40 Call 4.70 4.75 45 Call 1.75 1.80 50 Call 0.45 0.50
6 CBOE OPTIONS INSTITUTE
Bullish Spreads
Call Spread Example
Payoff at Expiration –
Recall – Target Price = 50.00
Stock 45 Call 50 Call Trade Cost P/L 40 45 50 55 60
(1.35) (1.35) (1.35) (1.35) (1.35)
0.00 0.00 5.00 10.00 15.00
0.00 0.00 0.00
(5.00) (10.00)
(1.35) (1.35) 3.65 3.65 3.65
7 CBOE OPTIONS INSTITUTE
Bullish Spreads
Call Spread Example
Payoff Diagram –
-2
-1
0
1
2
3
4
45.00 50.00
Max Gain +3.65
Max Loss -1.35
XYZ 44.00 Break even
45.00 + 1.35 = 46.35
Target price 50.00
8 CBOE OPTIONS INSTITUTE
Bullish Spreads
Put Spread Example
XYZ Trading at 44.00 – Bullish outlook for XYZ
Target price of 50.00 in 45 Days
45 Day Option Pricing
Buy 1 45 Put at 2.50 Sell 1 50 Put at 6.15
Net Credit = 3.65
Bid Ask 40 Put 0.65 0.70 45 Put 2.45 2.50 50 Put 6.15 6.20
9 CBOE OPTIONS INSTITUTE
Bullish Spreads
Put Spread Example
Payoff at Expiration –
Recall (again) – Target Price = 50.00
Stock 45 Put 50 Put Credit P/L 40 45 50 55 60
3.65 3.65 3.65 3.65 3.65
5.00 0.00 0.00 0.00 0.00
(10.00) (5.00) 0.00 0.00 0.00
(1.35) (1.35) 3.65 3.65 3.65
10 CBOE OPTIONS INSTITUTE
Bullish Spreads
Put Spread Example
Payoff Diagram –
-2
-1
0
1
2
3
4
45.00 50.00
Max Gain +3.65
Max Loss -1.35
XYZ 44.00 Break even
45.00 + 1.35 = 46.35
Target price 50.00
Yes…it is all the same as the call spread example
11 CBOE OPTIONS INSTITUTE
Bullish Spreads
Call vs. Put Spread
Two major differences –
Call spread initiated with a cost Put spread resulted in income
The second difference relates to what happens at expiration
12 CBOE OPTIONS INSTITUTE
Bullish Spreads
Call vs. Put Spread
Target was 50.00 – assume the stock is over 50.00 at expiration Call Spread – Long 45 Call Exercised – Buy 100 Shares
Short 50 Call Assigned – Sell 100 Shares
Put Spread – Long 45 Put Expires Short 50 Put Expires
Many traders prefer this outcome
13 CBOE OPTIONS INSTITUTE
Bullish Spreads
SPY Bull Put Spread
Thursday November 12 – SPY at around 205.00 – down about 5 points on the week Seller of an eight day put spread came into the market looking for a slight rebound in the broad based market
Sell SPY Nov 20th 206 Put at 1.76 Buy SPY Nov 20th 204 Put at 1.15
Net Credit = 0.61
14 CBOE OPTIONS INSTITUTE
Bullish Spreads
SPY Price Chart
Daily Prices
180
185
190
195
200
205
210
215
9/3/15 9/25/15 10/16/15 11/6/15
Trade Date
Data Source: Bloomberg
15 CBOE OPTIONS INSTITUTE
Bullish Spreads
SPY Bull Put Spread
Payoff Diagram
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
200 202 204 206 208 210
SPY @ ≈ 205.00
SPY 11/20 Close 209.31
-1.39
+0.61
16 CBOE OPTIONS INSTITUTE
BBY Earnings
Long Call Spread
BBY reported earnings before the open on Thursday May 21st There was a buyer of an out of the money call spread late in the trading day on May 20th
Three year summary of BBY earnings reactions
Buy 1 BBY May 22nd 35.00 Call at 0.70 Sell 1 BBY May 22nd 36.50 Call at 0.25
Net Debit = 0.45
Max Min Abs Avg. Last Q 13.24% -13.02% 5.73% 1.42%
Data Source: Bloomberg
17 CBOE OPTIONS INSTITUTE
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
33.50 35.00 36.50
BBY Earnings
Long Call Spread
Long 35.00 Call / Short 36.50 Call
-0.45
BBY 33.78
Up 7.74% +1.05
18 CBOE OPTIONS INSTITUTE
30
31
32
33
34
35
36
37
38
39
40
4/1 4/8 4/14 4/20 4/24 4/30 5/6 5/12 5/18 5/22
BBY Earnings
Price Action
Daily Prices
Data Source: Bloomberg
Earnings Reaction
19 CBOE OPTIONS INSTITUTE
FDX Earnings
Bull Put Spread
FDX Reported earnings Wednesday March 18 before the market open Later in the trading day, with FDX stock around 176.80 someone sold a bull put spread
Three year summary of FDX earnings reactions
Buy 1 FDX Mar 20th 170.00 Put at 0.91 Sell 1 FDX Mar 20th 172.50 Call at 1.46
Net Credit = 0.55
Max Min Abs Avg. Last Q 6.16% -6.89% 3.08% -3.72%
Data Source: Bloomberg
20 CBOE OPTIONS INSTITUTE
FDX Earnings
Bull Put Spread
Short 1 172.50 Put / Long 1 170.00 Put
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
167.50 170.00 172.50 175.00 177.50 180.00 182.50 185.00 187.50
+0.55
-1.95
Trade Price
176.80
21 CBOE OPTIONS INSTITUTE
FDX Earnings
Price Action
Daily Prices
165
170
175
180
185
12/30/14 1/15/15 2/2/15 2/18/15 3/5/15 3/20/15
Data Source: Bloomberg
Earnings Reaction
22 CBOE OPTIONS INSTITUTE
Bullish Spreads
Summary
Bullish vertical spreads may be created using either call options or put options Many traders prefer put option as they receive a credit but also because both options expire OTM if the forecast is correct A final benefit of vertical spreads is the ability to offset the time value of options though taking in premium
23 CBOE OPTIONS INSTITUTE
Bullish Spreads
Questions / Links / Contact
Questions?
www.cboe.com/education
www.cboe.com/blogs
CBOE App
@RussellRhoads [email protected]