Buying OEX Puts

 

OEX Index is at or below 605 at expiration


Buy 1 OEX 605 Call at $14


Say the OEX index did not move as anticipated, but instead declined with the exercise settlement value at or at any point below the $605 call strike price at expiration. The OEX 605 call would expire out-of-the-money and with no value, so the investor would lose the total premium of $1,400 initially paid for the option. This would be the limited, maximum loss no matter how far OEX had declined.

By purchasing the call for $1,400, significantly less cash than the $60,000 underlying asset value when the position was established, the investor limited the investment capital at risk if the OEX index did not increase as anticipated. Now he still has the $58,600 cash balance of his original investment capital, plus interest if it had been invested in short-term interest bearing instruments, with which to make another investment decision.

 
 

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