Theodore A. Andros and Joan B. Andros - Page 39

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               Because Tandrill’s options trades in the aggregate generated           
          a credit, its put positions could suffer an unfavorable price               
          movement and still provide Tandrill with an overall profit.                 
          Further, Tandrill’s put positions provide it with the ability to            
          absorb some of the risk in its futures positions.  That is, the put         
          positions could, in the aggregate, move unfavorably by $25,004              
          before Tandrill suffered a net loss.  Thus, $25,004 could be used           
          as a cushion to absorb losses in the short futures positions (if            
          the price of the short futures positions increased rather than              
          decreased).                                                                 
          Tandrill’s Portfolio Trading Strategy                                       
               Tandrill’s initial trading strategy was to build a portfolio           
          of Treasury bill put option credit spreads and short futures                
          positions in Treasury bills.  During this period, Tandrill closed           
          some of its short commodity futures positions at a profit.  For             
          example, on October 3, 1979, it closed two of its short futures             
          contracts (December) at 88.80 and two more on October 8 at 89.90--a         
          profit before commissions of $9,000.  Mr. Borst stated that                 
          interest rates were rising at the time Tandrill closed out its              
          short position, as evidenced by the fact that the closing price of          
          the short futures contracts in October was lower than the price of          
          the contracts when they were entered into in September. But                 
          Tandrill did not simultaneously close its put positions obtained on         
          September 20.  Mr. Borst believed that this was understandable              






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