PROFIT/LOSS AT SHORT CALL EXPIRATION 8/21/2010
The first table is our position of 9:11 sc:leap contracts
The second table demonstrates that even with 11:11 ratio position at expiration or even if assigned early will not lose money. That is because our difference in strike prices of leap and short call is greater than our net debit. This table is from poweropt website.
This is our position selling 9:11 contract ratio
Price Profit/Loss
$30.00 ($21,024)
$40.00 ($18,241)
$50.00 ($12,994)
$60.00 ($5,635)
$69.56 $2,769
$70.00 $3,176
$80.00 $3,922
$90.00 $5,196
$100.00 $6,789
Notice how with this ratio we will participate in some of the capital gains of IWM, even if IWM goes to $1000.00.
This is if we did 11:11 contract ratio
Price Profit/Loss
$30.00 ($20,174)
$40.00 ($17,391)
$50.00 ($12,144)
$60.00 ($4,785)
$69.56 $3,619
$70.00 $4,026
$80.00 $2,772
$90.00 $2,046
$100.00 $1,639
Notice how with a 11:11 ratio the p/l decreases but will never go below zero. It will never go below the difference between strikes minus net debit times 1100 shares or (20-19.88)*1100 or $132.
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