The 3Dimensional Trading Breakthrough
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Brian Schad<br />
Example:<br />
<strong>The</strong> tale of two traders: Trader A buys “long” the NASDAQ at 1,810.00 and<br />
purchases a corresponding 1810 put option for $920 for “insurance.” <strong>The</strong> position<br />
is offset at point “B” when the market is trading at 1,900.00. <strong>The</strong> net profit<br />
is $1,125 because of lost value in option premium. ($1,800 profit from futures<br />
contract - $675 loss in option premium = $1,125.00 NET PROFIT.)<br />
Trader B sells “short” at 1,900.00 and purchases a corresponding 1900 call<br />
option for $900. <strong>The</strong> position is offset at point “C” when the market is trading<br />
at 1,975.00. <strong>The</strong> net loss is only ($575) because of the added value in option<br />
premium originally bought as insurance. ($1,500 LOSS with futures contract +<br />
$925 gain in option premium = ($575) NET LOSS.)<br />
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