The share price will expire well above b the strategy

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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...
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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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