asx_UnderstandingOptionStrategies

Profit the maximum profit is the premium you sold the

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Unformatted text preview: trike price of the option you wrote. Loss: The maximum loss for this trade is the stock price that you paid less the premium received from the sale of the option. Volatility: The option value will increase as volatility increases (bad) and will decrease as volatility decreases (good). Time Decay: As each day passes the value of the option erodes (good). Profit 0 A Loss 24 PROTECTIVE PUT PLUS STOCK Construction: Buy 1000 underlying shares Buy 1 Put at A. Margins: No. Your Market Outlook: Cautiously bullish. The share price will rise but you are concerned of a possible fall below the strike price A. Your objective is to protect the capital value of your shares as you have the right to sell your shares at any time at the strike price A. Profit: The maximum profit is unlimited, you will profit from an increase in the share price. Loss: The maximum loss for this trade is the strike price plus the premium you paid for the option. Volatility: The option value will increase as volatility increases (good) and will decrease as volatility decreases (bad). Time Decay:...
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