Hockey Sticks

Visualize the possible gain or loss from any options trade

Simple graphical representations called hockey sticks show the potential profit and loss of any options trade. The name comes from the shape.

Imagery aside, keep in mind that options have a limited lifespan and expiration date. Volatility and time until expiration can change the pricing and profit or loss before expiration. The horizontal axis shows the potential stock price, while the vertical axis represents profit and loss. Remember that options control 100 shares, so options prices can be shown per share or per 100 shares.

Consider a few simple examples of how investors might use options to create a bullish position in Alphabet (GOOGL).

Long call

Investors hoping for a large rally in a stock might purchase a call option with a strike price at, above or below the current price.

In the example with Alphabet trading around $93, consider the potential profit from purchasing a 95 call for $485 ($4.85 debit x 100 shares), which entitles the owner to purchase 100 shares at $95.

The hockey stick shows the strategy won’t make money (at expiration) unless the stock is above $99.85 ($95 + the $4.85 paid for the call), making it a low-probability trade.

Above that breakeven price, the long call makes $100 for each $1 rise in Alphabet. The maximum loss is the $485 cost of the option.

By James Blakeway

with the price around $93, the premium is $118 ($1.18 x 100 shares).

The strategy makes money as long as Alphabet stays above $87.82 ($89 – $1.18), where the green turns to red on the sloped line. The maximum loss for the trade would occur if the stock went to zero—a fairly unlikely scenario for Alphabet in one or two months.

Short put

The short put options strategy, using a strike below the current price, is a higher probability strategy but has a maximum profit of the sale price of the option. This is represented by the flat green portion of the hockey stick. Using the example of selling an 80 put in Alphabet

Short put spread

A hockey stick clearly shows the defined risk and defined profit of a short put spread. Consider the sale of the 90 put and the simultaneous purchase of the 85 put for Alphabet.

The spread is sold for $154 ($1.54 x 100 shares), which is the maximum profit. The maximum loss is the width of the spread minus the max profit [($5 – 1.54) x 100] = $346 loss.

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April

On the green

Expect a full complement of spectators at the Masters. Attendance returned to capacity last year for the first time since 2019, with 40,000 fans per day. The traditional par-3 contest also returned. Tiger Woods is expected this year, and his five Masters victories are one shy of the record of six green jackets held by Jack Nicklaus.

Scottie Scheffler earned his first Masters victory in 2022 with a 10-under 278. Rory McIlroy placed second with a 7-under 281, and two golfers—Shane Lowry and Cameron Smith—tied for third with scores of 5-under 283.

Tax returns

Taxes are a headache. According to the IRS, the average American spends 11-13 hours preparing a federal income tax return, which includes six on recordkeeping and two on planning. Taxpayers who itemize deductions, make charitable contributions or have other complications can expect to spend even more time.

The IRS issues most refunds within 21 calendar days, but the waiting time has increased since the pandemic. The odds of being audited are typically below 1%, and in FY 2021 odds were 4.1 out of every 1,000 returns filed (0.41%).

In FY 2021, the IRS processed more than 261 million federal tax returns and supplemental documents, collected more than $4.1 trillion in gross taxes and issued 600.1 million refunds, amounting to more than $1.1 trillion.

April 18 may seem far away but it will be here much sooner than the majority of taxpayers seem to think.

Lennon’s lost weekend

John Lennon and Yoko Ono were separated for 18 months in 1973 and 1974, and that’s when he moved to LA and began a relationship with his then 22-year-old assistant, May Pang.

The two lived with Lennon’s son Julian, and Lennon often referred to that period as “the lost weekend.” But Pang maintains the phrase doesn’t do justice to their time together.

The film, The Lost Weekend: A Love Story, offers a fresh look at Lennon through the experience of Pang and Julian, during a moment when Lennon was having a career revival.

Indie reads

This year marks the 10th anniversary of Independent Bookstore Day, which celebrates indie bookstores across the U.S.

As of 2022, 2,023 independent bookstores were operating in 2,506 locations. The record low was in 2009, when only 1,401 bookstores were open for business in 1,651 spots.

Since Amazon came into being in 1995, the number of indie bookstores has decreased by 63.2%, and the number of locations has fallen by 64.2%.

Amazon accounts for more than half of the books sold in the U.S. and more than 65% of the books sold online.