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| Zale Straddle 7.50 May 13 2013 |
Zale Corporation (ZLC) 4.83 Straddle
May 13 2013 7.50
11/13/12 Straddle Strike 7.50 Call Ask 1.15
Put Ask 1.80
Net
Debit: -2.95
11/27/12 Straddle Strike 7.50 Call Bid .20
Put Bid 2.70
Net
Credit: 2.90
Short -.5
Black Scholes hypothetical break even upon date, 11/13/12,
straddle buy is slightly short $-5
Sell back Call Bid .20
Exercise Put Bid 2.70 @
Strike 7.50 Trading Price 4.83
7.5 – 4.83 = 2.67
+ .20 = 2.87
Net
Credit: 2.87
Short
-.8
Exercise is short $-8 according to hypothetical Black
Scholes upon buy date 11/13/12
Why? Volatility increase does not outweigh Theta decrease, yet.
Upon: 11/27/2012 Net
Delta: -49.737 Gamma: 27.679 Theta: -0.404 Vega: 2.148
90 day HV: 91.99% one week ago 67.54% Increase 24.55%
90 day IV: 63.58% one week ago 62.26% Increase 1.32%
Straddle price should rise.
This is a good substitute for buying the stock. Since the price is so low. A $295 dollar hedge to own 100 shares at 7.50, if the stock was bought at that price would be $750. Then the stock falls 267 dollars to $483. Owning the shares would have been roughly a 30% loss, where owning the straddle is only a $5 loss.
Logical Action:
This is a good substitute for buying the stock. Since the price is so low. A $295 dollar hedge to own 100 shares at 7.50, if the stock was bought at that price would be $750. Then the stock falls 267 dollars to $483. Owning the shares would have been roughly a 30% loss, where owning the straddle is only a $5 loss.
Logical Action:
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| ZLC Strangle Strike: 5.00 and 7.50 |
11/29/12 Straddle Strike 7.50 Call Bid .25
Put Bid 2.70
Net
Credit: 2.90
Even 0
Sell Call Bid .25
Buy Call Ask .90 Strike
5.00
Hold Put Bid 2.70
Net
Debit: -.335
Strangle break evens have narrowed.
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| 12/20/12 ZLC Strangle Strike 5.00 and 7.50 |
12/20/12 Strangle Strike 7.50 and 5.00
7.50 Call Bid .40
5.00 Put Bid 3.20
Net
Credit: 3.60
Profit: $25
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