asx_UnderstandingOptionStrategies

Profit the maximum profit for this trade is limited

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Unformatted text preview: d. Loss: The maximum loss will occur at the strike price B. Volatility: The option value will increase as volatility increases which is generally good for the strategy. Alternatively a decrease in volatility will be generally bad for the strategy. Time Decay: As each day passes the value of the option erodes (bad). Most of the decay will occur in the final month before expiry. Profit A C 0 B Loss 22 SHORT CONDOR Construction: Sell 1 Call at A and Buy 1 Call at B and Buy 1 Call at C and Sell 1 Call at D. Sell 1 Put at A and Buy 1 Put at B and Buy 1 Put at C and Sell 1 Put at D. Sell 1 Call at A and Buy 1 Call at B and Buy 1 Put at C and Sell 1 Put at D. Sell 1 Put at A and Buy 1 Put at B and Buy 1 Call at C and Sell 1 Call at D. Margins: Depends on how it is constructed. Your Market Outlook: Volatile/Event Driven. Volatility will increase, if it does both bought options will increase in value. You are unsure of the direction of the stock but you think it will make a large move. Profit: The maximum profit for this...
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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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