If it is at b then it works for you on the 2 sold

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: UT SPREAD Construction: Sell 2 Puts at A and Buy 1 Put at B. Margins: Yes. Your Market Outlook: Neutral. The share price will expire around the strike price A. If you are wrong you see the risk as a price rise. The strategy provides protection if the share price rises as you will profit from the sold puts. If the stock falls sharply you will lose. Profit: The maximum profit is limited to B minus A minus net cost of position. Loss: As the stock price can only fall to zero the maximum loss is limited on the downside and limited to the net cost of the position on the upside. Volatility: Generally as volatility decreases this will benefit the position. Time Decay: It depends on the underlying share price, if it is at A, then time decay works for you on the sold options. If it is above B, then it works against you on the bought option. Profit A 0 B Loss Neutral 19 LONG STRADDLE Construction: Buy 1 Call at A and Buy 1 Put at A. Margins: No. Your Market Outlook: Volatile/Event Driven. Volatility will increase, if it does both bo...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online