April 2013
Beginner
336 pages
6h 40m
English
book
Visual Quantitative Finance: A New Look at Option Pricing, Risk Management, and Structured Securities
by Michael Lovelady
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10. Option Investment Profiles
This chapter extends investment profiles to the four basic option variations:
• Long call options
• Short call options (also referred to as written call options)
• Long put options
• Short put options (also referred to as written put options)
Option investment profiles combine standard option profit diagrams with a probability distribution. To provide a comparison benchmark, the graphs also include the stock profit line to highlight the difference between the derivative and its underlying security. This chapter also begins the discussion on leverage and capital allocation, where the intent may not be as clear with options as it is with stocks, and where metrics need to be defined in the context of specific objectives. ...