asx_UnderstandingOptionStrategies

Volatility the option value will increase as

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Unformatted text preview: As each day passes the value of the option erodes (bad). Profit 0 A Loss Stock Combinations 25 STOCK WITH COLLAR Construction: Buy 1000 underlying shares Buy 1 Put at A and Sell a Call at B. Margins: No. Your Market Outlook: 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. You pay for this protection by selling the Call at B. Depending on the strike prices you choose this could be done for zero cost or even a net credit. Profit: The maximum profit is limited to the gain made on the share up to the strike price B plus (minus) the net credit (net debit) of the option trades. Loss: The maximum loss is limited to the loss made on the share down to the strike price A plus (minus) the net credit (net debit) of the option trades. Volatility: You are not affected by volatility. Time Decay: You are not affected by time decay. Profit B 0 A Loss 26 BOX SPREAD Construction:...
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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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