asx_UnderstandingOptionStrategies

Time decay as each day passes the value of the option

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: of the decay will occur in the final month before expiry. Profit B 0 A Loss C 16 LONG CONDOR Construction: Buy 1 Call at A and Sell 1 Call at B and Sell 1 Call at C and Buy 1 Call at D. Buy 1 Put at A and Sell 1 Put at B and Sell 1 Put at C and Buy 1 Put at D. Buy 1 Call at A and Sell 1 Call at B and Sell 1 Put at C and Buy 1 Put at D. Buy 1 Put at A and Sell 1 Put at B and Sell 1 Call at C and Buy 1 Call at D. Margins: Depends on how it is constructed. Your Market Outlook: Neutral. The share price will expire between the strike prices B and C. This strategy is also used if your view is that volatility will decrease, the bought options at A and D provide protection for the strategy. Profit: The maximum profit will occur anywhere between the strike price B and C. Loss: The maximum loss for this trade is limited. The break-evens are at A plus the cost of the spread and at D less the cost of the spread. Volatility: The option value will decrease as volatility decreases which is generally good for the strategy. Alternatively an increase in volatility will be generally bad for the strategy. T...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online