asx_UnderstandingOptionStrategies

Volatility the option value will increase as

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: the maximum loss. Volatility: The option value will increase as volatility increases (good) and will fall as volatility falls (bad). Time Decay: As each day passes the value of the option erodes. Profit 0 A Loss Construction: Sell 1 Put at strike price A. Margins: Yes. Your Market Outlook: Bullish. The share price will not fall below the strike price A. If it does you are obligated to buy at the strike price A, or buy the option back to close. Profit: The maximum profit is the premium you sold the option for. The break-even point will be the options strike price A, minus the premium received for the option. Loss: The maximum loss is the strike price A, less the premium received. Volatility: The option value will increase as volatility increases (bad) and will decrease as volatility decreases (good). Time Decay: As each day passes the value of the option erodes (good). Profit 0 A Loss Bullish 2 SHORT PUT 3 SYNTHETIC LONG STOCK Construction: Buy 1 Call and Sell 1 Put both at strike price...
View Full Document

This note was uploaded on 08/30/2009 for the course FINM 3405 taught by Professor Philipgray during the Three '09 term at Queensland.

Ask a homework question - tutors are online