asx_UnderstandingOptionStrategies

Asx_

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Unformatted text preview: ice B, so do your losses. Loss: The maximum loss for this trade is unlimited. Volatility: Volatility effect is minimal. Time Decay: It depends on the underlying share price, if it is below A, then time decay works against you. If it is above B, then it works for you. Profit B 0 A Loss Bearish 11 BEAR SPREAD Construction: Sell 1 Put at A and Buy 1 Put at B, Sell 1 Call at A and Buy 1 Call at B. Margins: No for Puts and Yes for Calls. Your Market Outlook: Bearish. The share price will expire below A, the strategy provides protection if your view is wrong as your maximum loss is at B, no matter how far above B the share price increases. Profit: The maximum profit is limited to the difference between A and B less the cost of the spread. If A and B are $1 apart and you bought the spread for $0.40, then maximum profit is $0.60. Loss: The maximum loss is also limited to the cost of the spread. Volatility: You are not affected by volatility. Time Decay: It depends on the underlying share price,...
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This note was uploaded on 08/30/2009 for the course FINM 3405 taught by Professor Philipgray during the Three '09 term at Queensland.

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