asx_UnderstandingOptionStrategies

Time decay as each day passes the value of the option

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Unformatted text preview: value of the option erodes (good). Profit 0 A Loss Bearish 9 SYNTHETIC SHORT STOCK Construction: Buy 1 Put at A and Sell 1 Call at A. Margins: Yes. Your Market Outlook: Bearish. The share price will fall below the strike price A, but will not rise above that price. It is similar to short selling the underlying share. Profit: The maximum profit is limited to the strike price, as the share can't fall below zero. As the share price increases above the strike price A, so do your losses. Loss: The maximum loss for this trade is unlimited. Volatility: You are not affected by volatility. Time Decay: You are not affected by time decay. Profit 0 A Loss 10 SYNTHETIC SHORT STOCK (SPLIT STRIKE) Construction: Buy 1 Put at A and Sell 1 Call at B. Margins: Yes. Your Market Outlook: Bearish. The share price will fall below the strike price A, and that the share price will not rise above the strike price B. Profit: The maximum profit is limited to the strike price A, as the shares can't fall below zero. As the share price increases above the strike pr...
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