INDEX
STRATEGY
PAPER Bu.2
Bullish on Blue Chips -- Buy DJX Calls
Situation
In this example, the DJIA is at 10,700 (and so the CBOE’s options on the Dow, with a 1/100 value
and DJX ticker, are quoted at 107.00). You have $2,000 you are willing to invest in the market.
Outlook
The Federal Open Market Committee (FOMC) is meeting this week, and you believe they will
lower interest rates, possibly creating a bull market which will prevail over the next five to six
months.
Possible Strategy
Buy one DJX November 90 call at 20. Your total cost for the premium, with the $100 multiplier, is
$2,000.
All values shown below are at the time of expiration.
Index Change
+7.48%
+5.61%
+2.80%
+/- 0%
-8.41%
-13.08%
-15.89%
DJX @
expiration
115.00
113.00
*110.00
**107.00
98.00
93.00
***90.00
Nov 90 call
Value
$2,500.00
$2,300.00
$2,000.00
$1,700.00
$800.00
$300.00
$0.00
Premium Paid
($2,000.00)
($2,000.00)
($2,000.00)
($2,000.00)
($2,000.00)
($2,000.00)
($2,000.00)
Net Profit or
(Loss)
$500.00
$300.00
$0.00
($300.00)
($1,200.00)
($1,700.00)
($2,000.00)
At expiration on November 17, 2001 the Break-even point (*) for this Buy Call Strategy on the
DJX is 110.00 or (+2.80 %) change in the underlying index value.
If the DJX remained unchanged at 107.00 (**) a loss of $300.00 would be incurred.
The maximum loss (***) is $2,000 if the DJX is equal to or less than 90.00.
In a nutshell: There is unlimited profit potential if DJX rises above 110 by expiration. Maximum
potential loss equal to initial investment of $2,000.00 occurs if DJX falls to or below 90.00 by
expiration.
____________________________________________________
For more information on the options on the Dow, please visit http://www.cboe.com/djx
For more examples of options strategies, please visit http://www.cboe.com/strategies/
____________________________________________________________________
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a
person must receive a copy of Characteristics and Risks of Standardized Options, which is
available from your broker, by calling 1-800-OPTIONS, or from The Options Clearing Corporation,
440 S. LaSalle Street, 24th Floor, Chicago, IL 60605. The information in these materials is
provided solely for general education and information purposes and therefore should not be
considered complete, precise, or current. Many of the matters discussed are subject to detailed
rules, regulations, and statutory provisions which should be referred to for additional detail and
are subject to changes that may not be reflected in these materials. No statement within these
materials should be construed as a recommendation to buy or sell a security or to provide
investment advice.
Any strategies discussed, including examples, do not include commissions, dividends, margin, taxes, and
other transaction costs. However, these costs will affect the outcome of transactions and should be
considered. For further information regarding the tax effects of transactions, consult your tax advisor.
SM
SM
SM
“Dow Jones ", "Dow Jones Industrial Average ", "Dow Jones Transportation Average ," and "Dow
SM
Jones Utility Average " are service marks of Dow Jones & Company, Inc. and have been licensed for
certain purposes by The Chicago Board Options Exchange, Inc. ("CBOE"). CBOE's options based on the
Dow Jones Industrial Average, Dow Jones Transportation Average, and Dow Jones Untility Average are not
sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding
the advisability of investing in such products.
®
®
S&P 100 and S&P 500 are registered trademarks of the McGraw-Hill Companies, Inc., and are
®
licensed for use by the Chicago Board Options Exchange, Inc. OEX is a registered trademark and
TM
®
®
SPX is a trademark of the Chicago Board Options Exchange, Inc. LEAPS , FLEX , FLexible
®,
®,
®
®
EXchange CBOE Chicago Board Options Exchange and OEX are registered trademarks and
TM
TM
Long-term Equity AnticiPation Securities , and SPX are trademarks of the Chicago Board Options
Exchange, Inc.
®
Copyright © Chicago Board Options Exchange , Inc. 2001.
page 02
All rights reserved. Printed in USA.