asx_UnderstandingOptionStrategies

The share price will expire well above b the strategy

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: ill expire well above B, the strategy provides protection if the share price falls. Profit: The maximum profit is unlimited on the upside and limited on the downside to the net credit received when opening the trade. Loss: The maximum loss is at strike price B. It is equal to the difference between A and B less the net credit received. Volatility: Generally volatility will be beneficial to this trade, as volatility increases the value of Calls increases. Time Decay: It depends on the underlying share price, if it is below A, then time decay works for you on the Sold option. If it is above B, then it works against you on the 2 Bought options. Profit A 0 B Loss Bullish 6 RATIO CALL BACKSPREAD 7 LONG PUT Construction: Buy 1 Put at strike price A. Margins: No. Your Market Outlook: Bearish. The share price will expire well below A. It is used to profit from an expected fall in a share. This strategy is commonly used to provide protection to stocks held in your portfolio. If the share price falls, th...
View Full Document

Ask a homework question - tutors are online