here is an example.
assume investor puts same
amount in each play.
margin rules, commissions not considered.
Xerox stock sells for $61.
The Xerox/April/60 call sells for $7
3/8 and the Xerox/April/60 put
sells for $3 1/4.
The call, put and
a Treasury Bill all mature in 4
months.
The Treasury Bill price
is .9492.
Assume that Xerox
does not pay dividends in this
period.
orig stock 60 stock 50
(6,100) (6,000) (5,000) investor a buys xrx at 61
739 0 0 sells call
(5,361) (6,000) (5,000) net
325 0 1,000 investor b sells put
(5,686) (5,991) (5,991) buys t-bill
(5,361) (5,991) (4,991) net )
if stock goes up to 60 or better, each investors account is worth
approximately 6,000.
if stock goes down, say to 50 each account
is worth approximately 5,000.
difference of 8 due to spreads,
rounding etc.
so same approximately same profit
or loss whether covered call or
naked put.
any questions?
regards
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