asx_UnderstandingOptionStrategies

If the share price falls the profit from the put will

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Unformatted text preview: e profit from the Put will offset the loss on the Share. Profit: The maximum profit is limited to the strike price A less the cost of the option, as the share can only fall as low as zero. Loss: The maximum loss is equal to the amount of premium paid for the option. Volatility: The option value will increase as volatility increases (good) and will fall as volatility falls (bad). Time Decay: As each day passes the value of the option erodes (bad). Profit 0 A Loss 8 SHORT CALL Construction: Sell 1 Call at strike price A. Margins: Yes. Your Market Outlook: Bearish. The share price will expire below the strike price A. If it does you will get to keep the option premium. Profit: The maximum profit is the premium you sold the option for. The break-even point will be the options strike price A, plus the premium received for the option. Loss: The maximum loss for this trade is unlimited. Volatility: The option value will increase as volatility increases (bad) and will decrease as volatility decreases (good). Time Decay: As each day passes the...
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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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