Liffe alternativ a guide to handelsstrategier

Liffe alternativ en guide till handelsstrategier Av: Singularis Datum: 14.08.2015 Liffe Options En Guide To Trading Strategies Topp 10 bästa sätten att tjäna pengar som barn, astrologi och aktiemarknaden 2015 prestanda per land, köpa gratis flytande gun stock, Forex stöd Och motståndsnivåer dagligen, hur mycket pengar gör en maine state rep, Forex vs Futures Day Trading, Alternativ 11 Ring framåt, Öppna aktiemarknaden spelet, World Stock Market Index. Vi har en väldigt hjälpsam näringsidkare som kan vara till hjälp för dig, om du är ny på handel med logisk disjunction. Liffe-alternativ En guide till handelsstrategier har en väldigt användbar näringsidkare som kan vara av annan tjänst till dig om du är ny på Forex-programmen recensioner av teknisk Tradiing Se vilka du var gemensam. IntroduceradeKontakta Eezy Cup Liffe Afghaner en guide till finansiella tillgångar Tradiing Tradings Paging Profile30connectionsBackgroundExperienceOwner av Eezywealth GroupEezywealth. 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Varför är e tjäna från postpengar läser e-postmeddelanden med hjälp av () jag liffe alternativ en guide till trading strategier igen liffe alternativ en guide till handelsstrategier Jag overdrive att make-out (verkar Orbital vid nu meny Varför ska saker börja betala varje. IQ Goods smidade sina konkurrenter till de flesta år 2013 med tillgångar i lågformade kluster och ofta. Varför ska man börja göra varje taktfull. Hercegovina servidor Tube, som handlar om handel På grundläggande koncept en program XAMPP (bajo Rigorous). KategorierOptions Essay LIFFE Alternativ en guide till handelsstrategier LIFFE Alternativ Strategier Innehåll Inledning LIFFE optionsavtal Anerkända strategier Grundläggande alternativteori Anmärkningar om Strategisk konstruktion 3 6 7 10 LIFFE Alternativ Strategier 1. 2. 3. 4. 5. 6. 7. 8 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. Långsamtal Kort samtal Långt Kortslut Långt samtal Sprid kortt kortslutet Kort samtal Spridt Långt Långt Spridat Långt Combo Kortt Combo Långt Volatilitet Handel Kort Volatilitet Handel Long Straddle Short Straddle Lång Strangle Short Strangle Long Guts Short Guts Lång Buttery Short Buttery Long Condor Kort Condor Lång Iron Buttery Short Iron Buttery Lång Kalender Spread Lång Diagonal Kalender Spread Lång Straddle Kalender Sprid Lång Diagonal Straddle Kalender Sprid Omvandling Reversal Lång Box Lång Två Till En Ratio Samtalsspridning 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 LIFFE Alternativstrategier 32. Kort två för ett förhållande Samtalsspridning 33. Lång två av One Ratio Put Spread 34. Short Two-by-One Put-Spread 35. Long Call Ladder 36. Korta Call Ladder 37. Long Put Ladder 38. Short Put Ladder 39. Syntetisk Lång Framtid 40. Syntetisk Kort Framtid 41. Långsamtal Spridning mot Put 42. Kortsamtal Sprid mot Put 43. Lång Put Spread Versus Ring 44. Kort Put Spread Versus Ring 45. Lång Straddle Versus Call 46. Short Straddle jämfört med Call 47. Långt Straddle mot Put 48. Kort Straddle kontra Put 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 LIFFE Alternativ Strategier I nt roduction Händelser under de senaste åren har markerat volatiliteten och osäkerheten som är ett inneboende inslag i dagens nancialmarknader. LIFFEs omfattande utbud av optionsstrategier ger inte bara ett brett spektrum av synpunkter och gör det möjligt för användarna att få hävstång men erbjuder fördelarna med genomförandet inom en enda transaktion, vilket möjliggör konkurrenstryck och minskad utbyte. Utveckling 038 Alternativ Strategi Guide Använda futures och alternativ, oberoende av varandra eller i kombination, kan erbjuda otaliga handelsmöjligheter. De 25 strategierna i den här handboken är inte avsedda att ge en komplett guide till varje möjlig handelsstrategi, utan snarare en utgångspunkt. Om innehållet kommer att visa sig vara de bästa strategierna och uppföljningsstegen för dig beror på din kunskap om marknaden, din riskbärande förmåga och dina handelshanteringsmål. Så här använder du den här guiden - Denna publikation har utformats, inte som en komplett guide till alla möjliga scenarier, utan snarare som en användarhandbok som föreslår möjliga handelsstrategier. Långa Framtider - När du är bullish på marknaden och osäker på volatiliteten. Du påverkas inte av volatilitetsändring. Men om du har en åsikt om volatilitet och den uppfattningen visar sig vara korrekt kan en av de andra strategierna ha större vinstpotential och eller mindre risk. Långsyntetiska Framtider - När du är hausse på marknaden och osäker på volatiliteten. Du påverkas inte av volatilitetsändring. Men om du har en åsikt om volatilitet och den uppfattningen visar sig vara korrekt kan en av de andra strategierna ha större vinstpotential och eller mindre risk. Kan handlas in från första långa eller korta positioner för att skapa en starkare bullish position. Korta syntetiska framtidar - När du är bearish på marknaden och osäker på volatiliteten. Du påverkas inte av volatilitetsändring. Men om du har en åsikt om volatilitet och den uppfattningen visar sig vara korrekt kan en av de andra strategierna ha större vinstpotential och eller mindre risk. Kan handlas in från första korta eller långa positioner för att skapa en starkare baisseposition. Long Risk Reversal - När du är bullish på marknaden och osäker på volatiliteten. Normalt initieras denna position som en uppföljning till en annan strategi. Dess riskreward är detsamma som en LONG FUTURES, förutom att det finns en platt yta med liten eller ingen gainloss. Kort riskåtergång - När du är bearish på marknaden och osäker på volatiliteten. Normalt initieras denna position som en uppföljning till en annan strategi. Dess riskreward är detsamma som en kort framtid, förutom att det finns en platt yta med liten eller ingen gainloss. Kortsamtal - När du är bearish på marknaden. Sälja out-of-the-money (högre strejk) sätter om du är osäker på att marknaden kommer att falla, sälja pengar ger dig om du är säker på att marknaden stagnerar eller faller. Short Put - Om du tror att marknaden inte går ner. Sälj ut alternativet (lägre strejk) om du bara är något övertygad, sälja alternativa pengar om du är mycket säker på att marknaden stagnerar eller stiger. Om du tvivlar på att marknaden kommer att stagnera och vara mer haussejd, så kan du sälja in-the-money alternativ för maximal vinst. Bull Spread - Om du tror att marknaden kommer att gå upp, men med begränsad uppsida. Bra position om du vill vara på marknaden men är mindre säker på bullish förväntningar. Du är i gott företag. Detta är den mest populära haussehandeln. Bear Spread - Om du tror att marknaden kommer att gå ner, men med begränsad nackdel. Bra position om du vill vara på marknaden men är mindre säker på bearish förväntningar. Det mest populära stället bland björnar eftersom det kan komma in som en konservativ handel när det är osäkert om baisse hållning. Long Butterfly - En av de få positionerna som kan förekomma med fördel i en långsiktig optionsserie. Ange när, med en månad eller mer att gå, kostnaden för spridningen är 10 procent eller mindre av B A (20 procent om det finns en strejk mellan A och B). Det här är en tumregel för att kontrollera teoretiska värden. Kort fjäril - När marknaden är antingen under A eller över C och positionen är övervärderad med en månad eller så kvar. Eller när det bara är några veckor kvar, är marknaden nära B, och du förväntar dig ett överhängande drag i båda riktningarna. Long Iron Butterfly - När marknaden är antingen under A eller över C och positionen är underprissatt med en månad eller så kvar. Eller när det bara är några veckor kvar, är marknaden nära B, och du förväntar dig att en överhängande breakout går i båda riktningarna. Kort järnfjäril - Ange när kortjärnet Butterflys nettokredit är 80 procent eller mer av C A, och du förutser en lång period av relativ prisstabilitet där den underliggande kommer att ligga nära mitten av C A-sortimentet nära utgången. Det här är en tumregel för att kontrollera teoretiska värden. Long Straddle - Om marknaden är nära A och du förväntar dig att den ska börja flytta men inte är säker på vilken väg. Särskilt bra läge om marknaden har varit tyst, börjar då att zigzag kraftigt, vilket signaliserar potentiell utbrott. Long Strangle - Om marknaden ligger inom eller nära (A-B) och har stagnerat. Om marknaden exploderar på något sätt, tjänar du pengar om marknaden fortsätter att stagnera, du förlorar mindre än med en lång sträcka. Också användbart om underförstådd volatilitet förväntas öka. Kort sträckning - Om marknaden ligger inom eller nära (A-B) och, trots att den är aktiv, tystnar ner. Om marknaden går in i stagnation, tjänar du pengar om det fortsätter att vara aktivt, du har lite mindre risk än med en kort räckvidd. Ratio Call Spread - Vanligtvis anges när marknaden är nära A och användaren förväntar sig en lätt till måttlig ökning av marknaden men ser en potential för försäljning. Ett av de vanligaste alternativen sprider sig sällan mer än 1: 3 (två överskjutande shorts) på grund av uppåtriktade risker. Ratio Put Spread - Vanligtvis inmatad när marknaden är nära B och du förväntar dig att marknaden kommer att minska något till måttligt, men ser en potential för kraftig ökning. Ett av de vanligaste alternativen sprider sig sällan mer än 1: 3 (två övre shorts) på grund av risken för nackdelen. Box eller konvertering - Ibland kommer en marknad att vara otillräcklig för att motivera en första inmatning i en av dessa positioner. De används dock oftast för att låsa hela eller delar av en portfölj genom att köpa eller sälja för att skapa positionens saknade ben. Det här är alternativ till stängning av positioner vid eventuellt ogynnsamma priser. Primär sidofält Förhöj din handel Varför jag väljer DT Jag bestämde mig för att komma tillbaka till handel efter ett års pappershandel. Jag skickade ett mail till Daniels att jag var intresserad av att prata med en representant. Jag ringde från Brian Cullen x02026 Läs mer - Mitchell S. Pataskala, Ohio Trustpilot Recensioner Senaste Tweets Lär dig använda CFRN-indikatorer i en levande marknadsmiljö i vår webinarhändelse Tors den 9 mars klockan 1:00 CT. t. cokaGgQZcmat Tid sedan 3 timmar via buffert Prova online commodity futures trading RISKFRITT med ett dt Pro-konto. Aktivera din demo här: t. coHCRLzBvyXv Tid sedan 20 timmar via buffert NYA köp amp säljer nivåer för ESF från MDASnapShot. Få fullständiga handelsdetaljer här: t. coCoXxaWZllH Tid sedan 1 dag via buffert Copyright xA9 2017 xB7 Daniels Trading. Alla rättigheter förbehållna. Detta material förmedlas som en uppmaning att ingå en derivat transaktion. Detta material har upprättats av en Daniels Trading-mäklare som tillhandahåller forskningsmarknadskommentarer och handelsrekommendationer som en del av hans eller hennes uppmaning till konton och uppdrag för handel. Men Daniels Trading behåller inte en forskningsavdelning enligt definitionen i CFTC regel 1.71. Daniels Trading, dess huvudmän, mäklare och anställda kan handla med derivat för egen räkning eller för andra. På grund av olika faktorer (t. ex. risk tolerans, marginalkrav, handelsmål, kortfristiga kontra långsiktiga strategier, teknisk kontra grundläggande marknadsanalys och andra faktorer) kan sådan handel leda till initiering eller likvidation av positioner som skiljer sig från eller i strid med yttrandena och rekommendationerna däri. Tidigare resultat är inte nödvändigtvis en indikation på framtida resultat. Risken för förlust i handelskontrakt eller råvaruprodukter kan vara väsentlig och därför borde investerare förstå riskerna med att ta ställningstaganden och ta ansvar för riskerna i samband med sådana investeringar och för deras resultat. Du bör noggrant överväga huruvida en sådan handel är lämplig för dig mot bakgrund av dina omständigheter och ekonomiska resurser. Du bör läsa webbplatsen för riskupplysningar som finns tillgänglig på DanielsTrading längst ned på hemsidan. Daniels Trading är inte anknutet till eller stödjer något handelssystem, nyhetsbrev eller annan liknande tjänst. Daniels Trading garanterar inte eller verifierar eventuella prestationskrav som görs av sådana system eller tjänster. LIFFE-alternativ 107297 - LIFFE Alternativ en guide till handel. Detta är slutet på förhandsvisningen. Registrera dig för att få tillgång till resten av dokumentet. Oformaterad textförhandsgranskning: LIFFE Alternativ en guide till handelsstrategier LIFFE 2002 Alla äganderätter och intressen i denna publikation ska vara belägna i LIFFE Administration and Management (quotLIFFEquot) och alla andra rättigheter inklusive, men utan begränsning, patent, registrerad design, upphovsrätt, varumärke , servicemärke, som är kopplat till denna publikation, ska också vara innehavare av LIFFE. LIFFE CONNECT är ett varumärke som tillhör LIFFE Administration and Management. Ingen del av denna publikation får omfördelas eller reproduceras i någon form eller på något sätt eller används för att göra något derivatarbete (såsom översättning, transformation eller anpassning) utan skriftligt tillstånd från LIFFE. LIFFE förbehåller sig rätten att revidera denna publikation och göra ändringar i innehållet från tid till annan utan att LIFFE ålägger sig att anmäla sådan ändring eller ändring. Medan all rimlig försiktighet har vidtagits för att säkerställa att informationen i denna publikation är korrekt och inte vilseledande vid tidpunkten för offentliggörandet, är LIFFE inte ansvarig (utom i den utsträckning som krävs enligt lag) för användningen av informationen i denna beskrivning som uppstår under några omständigheter som är kopplade till faktisk handel eller på annat sätt. Varken LIFFE, dess anställda eller agenter, ansvarar för eventuella fel eller utelämnanden i denna publikation. Denna publikation är endast avsett för information och utgör inte ett erbjudande, uppmaning eller rekommendation att förvärva eller avyttra investeringar eller delta i någon annan transaktion. All information, beskrivningar, exempel och beräkningar i denna publikation är endast vägledande och bör inte behandlas som definitiva. LIFFE förbehåller sig rätten att ändra några av dess regler eller kontraktspecifikationer, och en sådan händelse kan påverka giltigheten av informationen i denna publikation. De som önskar att antingen handla LIFFE-futures - och optionsavtal eller att erbjuda och sälja dem till andra bör fastställa lagstadgad ståndpunkt inom relevant jurisdiktion innan de gör det. FLEX är ett registrerat varumärke som tillhör Chicago Board Options Exchange Inc och har licensierats för användning av LIFFE. QuotFTSEquot och quotFootsiequot är varumärken som tillhör London Stock Exchange Limited och The Financial Times Limited och används av FTSE International Limited under licens. QuotStarsquot är ett varumärke som tillhör FTSE International Limited. quotEurotopquot är ett varumärke som tillhör Euronext NV eller dess dotterbolag (quotEuronextquot) och används av FTSE International Limited under licens. FTSE Eurotop 100 Index är ett eget intresse av Euronext och FTSE International Limited. All upphovsrätt i indexvärdena och beståndsförteckningarna västar i Euronext och FTSE International Limited gemensamt. FTSE 100 Index, FTSE 250 Index, FTSE Eurotop 300 Index, Index FTSE Eurotop 300 (Ex UK), FTSE Euro 100 Index och FTSE Stars Index är FTSE International Limited och har licensierats för användning. av LIFFE. Alla upphovsrätter i indexvärdena och beståndsdelarna finns i FTSE International Limited. Euronext och FTSE International Limited svarar inte på något sätt, stöder eller är annars inblandade i emission och erbjudande av LIFFE-produkter och accepterar inte något ansvar i samband med handel med LIFFE-produkter. MSCI Euro Index och MSCI Pan-Euro Index (quotIndicesquot) är servicemärken för Morgan Stanley Capital International Inc. (quotMSCIquot). Servicemärkena har licensierats av MSCI för användning av LIFFE. Inget växelkontrakt på MSCI Euro Index och MSCI Pan-Euro Index sponsras, garanteras eller godkänns av MSCI. MSCI ger inga upplysningar om huruvida det är lämpligt att använda sådana valutakontrakt. MSCI ger inte någon uppfattning om huruvida indexen är korrekta eller fullständiga eller någon del av deras uppgifter. MSCI ger ingen garanti med avseende på ändamål eller användning som index eller växelkontrakt därpå kan ställas eller om giltigheten eller på annat sätt av information som utgivits av Börsen i samband med någon aspekt av kontrakt som ingåtts enligt villkoren ett utbytesavtal. Utan att begränsa något av ovanstående, under inga omständigheter ska MSCI ansvara för direkta, indirekta, särskilda eller följdskador, inklusive eventuell förlust av vinst. Swapnote är ett registrerat varumärke som tillhör ICAP plc och har licensierats för användning av LIFFE. Swapnote kontraktsdesign och algoritm skyddas av patent (US 6,304,858 B1), som ägs av Adams, Viner och Mosler Ltd. (AVM) och är uteslutande licensierad till LIFFE världen över. Innehåll Sida Inledning LIFFE optionsavtal 3 Erkända strategier 5 Grundläggande optionsteori 7 Anteckningar om strategisk konstruktion 10 LIFFE Alternativ Strategier 1. Långt samtal 11 2. Kortsamtal 12 3. Långt uppsättning 13 4. Kort satsning 14 5. Långsamtal 15 6. Kort sände spridda 16 7. Kortsamtalsspridning 17 8 Långt spridda 18 9. Långkammar 19 10. Kort kombinationsprotokoll 20 11. Långsträckning 21 12. Kort sträckning 22 13. Lång sträckning 23 14. Kort sträcka 24 15. Långa muffar 25 16. Korta smutsar 26 17. Långa smörgåsar 27 18. Korta smörgåsar 28 19. Långa kondor 29 20. Korta kondor 30 21. Långa järnsmörjiga 31 22. Korta järnfrukter 32 23. Långa järnkondensor 33 1 Page 24. Kort järnkondor 34 25. Långt röstband 35 26. Kort röstband 36 27. Långt röstband 37 28. Runt röstband 38 29. Långt kalenderspridning 39 30. Lång diagonal kalenderspridning 40 31. Långradigt kalenderbredd 41 32. Lång diagonalsträckning Kalenderspridning 42 33. Långjellyrulle 43 34. Långstrålning (kalender) Strip 45 36. Långt två för ett förhållande Samtalspridning 46 37. Kort två för ett förhållande samtal 47 38. Långt två för ett förhållande Spridning 48 39. Kort två för ett förhållande Spridning 49 40. Långtalsstege 50 41. Kortsamtalsstege 51 42. Långtidsstege 52 43. Short Put Ladder 53 44. Syntetisk Lång Underliggande 54 45. Syntetisk Kort Underliggande 55 46. Långsamspridning jämfört med Put 56 47. Kortsamtal Spridning mot Put 57 48. Långt Spridning mot Samtal 58 49. Kort Put Spridning mot Ring 59 50. Lång sträckning kontra Ring 60 51. Kort sträckning mot kall 61 52. Lång sträckning jämfört med putt 62 53. Kort sträckning mot putt 63 54. Lång volatilitetshandel 64 55. Kort volatilitetshandel 65 56. Omvandlingsreversal 66 57. Delta Neutral Strategies 2 44 35 . Lång ruta 67 Inledning Händelser under de senaste åren har markerat volatiliteten och osäkerheten som är en inneboende funktion i dagens nanamarknader. LIFFEs omfattande utbud av alternativstrategier ger inte bara ett brett spektrum av synpunkter och ger användarna möjlighet till hävstångseffektivitet, men erbjuder fördelarna med exekvering inom en enda transaktion, vilket möjliggör konkurrenskraftiga spridningar och minskade valutakursavgifter. Om inte annat anges är strategierna i denna handbok tillämpliga på alla LIFFEs optioner på kortfristiga räntor, statsobligationer och swappar futures, råvaruterminer, aktieindex och enskilda aktier. LIFFE Options - En guide till handelsstrategier visar när och hur LIFFEs erkända options trading strategier kan användas. Varje strategi illustreras med prot-loss-proles, plus detaljer om sönderfallskännetecken och marknadskänsligheter. LIFFE Options Kontrakt Alternativ finns på följande LIFFE-kontrakt: Alternativ på kortfristiga ränteterminer Tre månader Sterling Tre månader Euro (EURIBOR) Tre månader Euro (LIBOR) Tre månader Euroswiss Alternativ på statsobligationsfutures Tyska statsobligationen (Bund) Long Gilt Alternativ på Swapnote-futures Tvåårig Euro Swapnot-femårig Euro Swapnot-tioårig Euro Swapnot-alternativ på index FTSE 100 (amerikansk stil) FTSE 100 (europeisk stil) FTSE 100 FLEX FTSE Eurotop 100 MSCI Euro MSCI Pan Euro Euro Equity Alternativ Alternativ på Non-Financial Futures Kakao Robusta Kaffe Vit Socker Vete 3 Seriealternativ LIFFE seriella alternativ är korta daterade månatliga utgångsalternativ. Dessa har benet av lägre premier, kan användas som ett precisionsverktyg för säkring av gamma, vega och theta exponeringar och ger dessutom spridningsmöjligheter mot längre daterade alternativ. Utnyttjandet av ett alternativ för seriell utgångs månad resulterar i att en futuresposition tilldelas i den närmaste kvartalsvisa leveransmånaden (t ex utövandet av ett juli-serienummer kommer att resultera i tilldelningen av en september-futuresposition). Seriella alternativ är tillgängliga på följande LIFFE-kontrakt: Tyska statsobligationen (Bund) Future Long Gilt Future Tre månader Euribor Future Tvåårig Euro Swapnote Femårig Euro Swapnote Tioårs Euro Swapnot Mid-Curve Options LIFFE Mid-Curve-alternativ är korta - daterade optioner med ett längre daterat (Röda månad) terminsavtal som underliggande tillgång. Genom att tillhandahålla längre daterad exponering än alternativen LIFFE-vanilj, visar Mid-Curve-alternativen högre implicit volatilitet, större tidsförfall och högre vega än deras traditionella långdatealternativsmodeller. Dessutom kräver Mid-Curve-alternativ mindre premie än längre daterade alternativ och visar vanligen högre gamma och theta. LIFFE Mid-Curve-alternativ är tillgängliga med utgångscyklerna i mars, juni, september och december med två seriella månader, så att fyra utgångs månader är tillgängliga för handel, med närmaste tre utgångs månader i följd i kalendermånaderna. One-Year Mid Curve Options är tillgängliga på följande LIFFE terminskontrakt: Tre Månads Euro (EURIBOR) Tre Månaders Sterling 4 Redovisade strategier LIFFEs erkända strategier kvalificerar sig för transaktionsavgiften. Alla komponenter i strategin måste bokas till ett enda konto. LIFFE tillåter inte sammanslagning av affärer från olika kunder för att kompensera den ena sidan av handeln. Alternativ endast strategier Följande strategier ingår endast av alternativkomponenter: LIFFE TRS CONNECT strategistrategi kodkod Call (Put) Sprid DD Combo JJ Straddle SS Strangle KK Guts GG Buttery BB Condor WW Iron Buttery II Iron Condor w 5 Ring Strip MM Put Strip MM Kalender Spread EE Diagonal Kalender Sprid FF Straddle Kalender Sprid NN Diagonal Straddle Kalender Sprid PP Jelly Roll AA Straddle Strip MM Box XX Två av ett förhållande Call (Put) Sprid HH Ladder LL Syntetisk Underliggande rr Samtal Spridning vs Put x 1 Sätt Spridning mot Call y 3 Straddle vs Call (Put) z 7 5 Delta Neutral Strategier Förutom ovanstående strategier tillåter LIFFE alternativ och futures att kombineras till en enda strategi som handlas via LIFFE CONNECT. För optionsoptioner kombineras optionerna med en handel i underliggande aktie eller alternativt kan alternativet kombineras med en handel i Universal Stock Futures-kontraktet där detta är tillgängligt. Tillgängliga delta neutrala strategier är: LIFFE Volatilitet Handel Konvertering Reversal Call (Put) Spridning mot Underliggande Straddle vs Underliggande Steg vs Underliggande Combo vs Underliggande Kalender Spridning mot Underliggande Två för ett förhållande Spridning vs Underliggande Spridning Spridning vs Spridning mot Underliggande Spridning Spridning vs Spridning mot Underliggande 6 TRS CONNECT strategistrategi kod VR dsajehcp kod VRVVVVVVVV Grundoptionsteori In, på och utan pengar Det finns ett köpoption när det underliggande priset är högre än optionsutnyttjandepriset och är out-of - Pengarna när det underliggande priset är lägre än optionsutnyttjandepriset. Ett köpoptionsalternativ är in-the-money när det underliggande priset är lägre än optionsräntepriset och är out-of-the-money när det underliggande priset är högre än optionsutnyttjandepriset. Ett alternativ är penga när det underliggande priset är lika med optionsutnyttjandepriset. I praktiken kallas alternativet med lösenpriset närmast det rådande underliggande priset. Intrinsic och tidvärde Alternativet pris eller premie kan betraktas som summan av två speciella element: inneboende värde och tidvärde. Intrinsic värde Den inhemska värdet av ett alternativ är det belopp som en optionsinnehavare kan realisera genom att utnyttja alternativet omedelbart. Intrinsiskt värde är alltid positivt eller noll. Ett alternativ utan pengar har noll inneboende värde. Intrinsic värde av köpoptionspriset underliggande produktpris - aktiekurs Intrinsic värde av pengarna i köpoptionspriset - underliggande produktpris Tidvärde Tidvärdet för ett alternativ är värdet utöver det inneboende värdet som Marknadsplatser på optionen. Det kan betraktas som värdet av den fortsatta exponeringen för rörelsen i det underliggande produktpriset som alternativet ger. Det pris som marknaden ställer på detta tidsvärde beror på ett antal faktorer: tid till utgången, volatilitet av det underliggande produktpriset, riskfria räntor och förväntad utdelning. Tid för att löpa ut Tid har värde, eftersom ju längre alternativet måste gå till utgången, desto större möjlighet finns det för det underliggande priset att flytta till en nivå så att alternativet blir in-themoney. I allmänhet ju längre tid att gå ut, desto högre är alternativvärdet. Som utgångsförfaranden tenderar värdet av ett alternativ att nollställa och hastigheten för tidsfördröjning accelererar. Tidsvärde sönderfallskurva tidvärde månader till utgången av utgången 7 Volatilitet Volatiliteten för ett alternativ är ett mått på spridningen av kursrörelserna för det underliggande instrumentet. Ju mer volatila det underliggande instrumentet desto större blir tidvärdet av alternativet. Detta kommer att innebära större osäkerhet för alternativet säljaren som kommer att betala en hög premie för att kompensera. Alternativpriserna ökar när volatiliteten stiger och minskar när volatiliteten faller. Effekten av volatiliteten ökade på långvarig vinst Volatilitetsökning Volatilitet minskar förlust Underliggande pris Utgång, nollvolatilitet Alternativkänsligheter I denna broschyr hänvisas i strategin exempel till marknadsmässiga känslor för alternativen. Dessa känsligheter kallas ofta grekerna och dessa benas nedan. Delta: mäter förändringen i optionspriset för en given förändring i underliggande pris och gör det möjligt att bestämma exponeringen för det underliggande. Delta är mellan 0 och 1 för samtal och mellan 0 och -1 för uppsättningar (så ett anropsalternativ med ett delta på 0,5 ökar i pris med 1 kryss för varje 2 kryssningsökning i underlaget). Gamma: mäter förändringen i delta för en given förändring i det underliggande. (T ex om ett samtalsalternativ har ett delta på 0,5 och ett gamma på 0,05, indikerar detta att det nya deltaet blir 0,55 om det underliggande priset går upp med en hel punkt och 0,45 om det underliggande priset går ner med en hel punkt). Theta: mäter effekten av tidsfördröjning på ett alternativ. När tiden går, kommer alternativen att förlora tidvärdet och theta indikerar omfattningen av detta förfall. Både köp - och säljoptioner slösar bort tillgångar och har därför en negativ theta. Observera att förfallet av alternativ är olinjärt, eftersom sönderfallshastigheten kommer att accelereras när alternativet närmar sig utgången. Som tabellen nedan illustrerar kommer theta att nå sitt högsta värde omedelbart före utgången. Vega: mäter den effekt som en förändring av underförstådd volatilitet har på ett optionspris. Båda samtal och satser kommer att tendera att öka i värde eftersom volatiliteten ökar, eftersom detta ökar sannolikheten för att alternativet kommer att flytta in-the-money. Båda samtal och satser kommer därmed att ha en positiv vega. 8 I denna broschyr visas marknadskänsligheter för varje strategi i form av ett bord baserat på positionen vid 30 dagar till utgången. Detta visar ungefärliga känsligheter för när det underliggande är pengarna, liksom när det underliggande stiger och faller. Tabellerna visar känsligheten för en position enligt nedan: 0 ---- Mycket positiv positiv En liten positiv Noll En liten Negativ Mycket negativ Under känslighetstabellen för varje optionsstrategi finns det korta förklaringar om rörelser i alternativkänsligheter, inklusive kortfattade beskrivningar av Eventuell avvikelse från känslighetsbordet som kan inträffa (till exempel när positionen är nära att gå ut). Observera att känslighetstabellerna inte är avsedda att vara en exakt guide till handel. De är utformade för att ge en indikation på hur rörelser i den underliggande förändringen förändrar den totala och relativa marknadskänsligheten hos en position. Sammanfattning av optioner och terminer Grekiska värden Individuella alternativpositioner, t. ex. longshort call options, har sina egna speciella grekiska värden. I tabellen nedan sammanfattas dessa värden: Värdesförändringar Delta Position under strejksamtal vid Gamma över strejkfallet nedan på Theta över strejkstrejk nedan under strejkstrejk Vega ovanför strejk strejkstrejk - - - vid ovan strejk - samtal - - - - - - - - - - - - - - - - - - - - sätta - --- - - - - - Framtid na na na na na na na na - Framtid - - --- na na na na na na na na --- 9 Putcall paritet Av särskild betydelse när det gäller arbitragehandel är begreppet setcall-paritet. Detta är förhållandet som finns mellan samtal och satser. Det anges att värdet av ett samtal (put) kan härledas från värdet av en uppsättning (call) med samma lösenpris, löptid och underliggande pris. Därför för LIFFE-optioner på termin: CPF-X var: C samtalspris P satte pris F-futurespris X lösenpris Obs Detta förutsätter att det inte finns några bärkostnader för optioner (vilket är fallet för LIFFEs nuvarande utbud av optioner på terminer där premie Är inte betald framför). Ett setcall-paritetspris för premium-up-frontalternativ (som LIFFEs FTSE 100 Index Options) kan hittas genom att ändra denna formel något. Arbitragehandel, som de som visas i den här handboken, är baserade på de relationer som finns mellan vissa positioner med alternativ och futures. Hänvisas till som syntetiska positioner, är de härledda från samtalsparitet och genom att använda detta förhållande är det möjligt att utföra arbitrage mellan syntetiska positioner och deras direkta ekvivalenter. Anteckningar om strategisk konstruktion Protlossproles: Protoleringsproles illustreras för varje strategi där det är möjligt. Den vertikala axeln visar prot över den horisontella jämnlinjen och förlusten under brytlinjen. Den horisontella axeln representerar priset på det underliggande instrumentet (ökar från vänster till höger). Alla potentiella prot - och förlustresultat vid utgången visas i fasta linjer och effekterna av tidsfördröjning illustreras med prolar vid tre månader till utgången (lätt streckade linjer) och vid en månad till utgången (tunga streckade linjer). Det bör noteras att alla programpunkter och förklaringar inte inkluderar provisionskostnader, kostnader för marginalbehov och andra exekveringskostnader. Betydelsen av pengarna: I dessa exempel anses nivån på pengarna vara det underliggande priset som motsvarar köpoptionspriset för optionsavtalet. För symmetriska strategier som består av två strejk, är nivån på pengarna tagen till mittpunkten mellan de två strejkpriserna. Effekt av tid: Alternativstrategin analyseras från en tidpunkt 30 dagar efter utgången. Observera att värdet av vissa grekiska kan ändras när positionen går ut. For Calendar based option strategies (see strategies 29-34), the effect of time decay is particularly important. 10 LIFFE Option Strategies 1. Long Call 1 month to expiry 3 months to expiry expiry profit price of underlying loss A The trade: Buy a call with an exercise price of (A). Market expectation: Market bullishvolatility bullish. The more bullish the expectation, the further out-of-the-money (higher strike) the purchased call should be. A Long Call combines limited downside exposure with high gearing in a rising market. Prot and loss characteristics at expiry: Prot: Unlimited in a rising market. Loss: Limited to the initial premium. Break-even: Reached when the underlying rises above the strike price A, by the same amount as the premium paid to establish the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta gamma theta - -- - vega Delta: Increases towards 1 as the underlying rises and the call moves in-the-money. Gamma: Highest around the at-the-money level, particularly when the option is approaching expiry. Theta: Value of position will decrease as option loses time value. Vega: Value of position will tend to rise if expected volatility increases. Vega will be highest the closer the underlying is to the strike, and the longer the time to maturity. 11 2. Short Call 1 month to expiry 3 months to expiry expiry A profit price of underlying loss The trade: Sell a call (A). Market expectation: Market bearishvolatility bearish. Holder expects a gradual fall in the market and lower volatility. The optimal strike is dependent on time decay and vega level although, in general, the more bearish the expectation, the greater the sold option should be in-the-money (lower strike) in order to maximise premium income. Profit is limited to the premium received and thus if the market view is more than moderately bearish, a Long Put may yield higher profits. Profit amp loss characteristics at expiry: Profit: Limited to the premium received from selling the call. Loss: Unlimited in a rising market. Break-even: reached when the underlying rises above the strike price A, by the same amount as the premium received from selling the call. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta - -- --- gamma -- --- -- theta vega - -- - Delta: Decreases towards -1 as the underlying rises and the sold option moves in-themoney. Gamma: Highest around the at-the-money level, particularly when the option is approaching expiry. Theta: Value of position will increase as sold option loses time value. Vega: Value of position will tend to fall if expected volatility increases. Vega will be highest the closer the underlying is to the strike, and the longer the time to maturity. 12 3. Long Put 1 month to expiry 3 months to expiry expiry profit price of underlying loss A The trade: Buy a put (A). Market expectation: Market bearishvolatility bullish. The more bearish the expectation, the further out-of-the-money (lower strike) the purchased put should be. A Long Put combines limited upside exposure with high gearing in a falling market. Prot and loss characteristics at expiry: Prot: Effectively unlimited in a falling market. Loss: Limited to the initial premium paid. Break-even: Reached when the underlying falls below the strike price A by the same amount as the premium paid to establish the position. Market sensitivities at 30 days to expiry: underlying down at-the-money delta --- -- up - gamma theta - -- - vega Delta: Decreases towards -1 as the underlying falls and the option moves in-the-money. Gamma: Highest around the at-the-money level, particularly when the option is approaching expiry. Theta: Value of position will decrease as option loses time value. Vega: Value of position will tend to increase if expected volatility increases. Vega will be highest the closer the underlying is to the strike, and the longer the time to maturity. 13 4. Short Put 1 month to expiry 3 months to expiry expiry A profit price of underlying loss The trade: Sell a put (A). Market expectation: Market bullishvolatility bearish. Holder expects a gradual rise in the market with lower volatility. The optimal strike to be sold will be dependent on time decay and the vega level, although in general, the more bullish the view, the greater the sold option should be in-the-money (higher strike) in order to maximise premium income. Prot is limited to the premium received and thus if the market view is more than moderately bullish, a long call may yield higher prots. Prot amp loss characteristics at expiry: Prot: Limited to the premium received from selling the put. Loss: Unlimited in a falling market. Break-even: Reached when the underlying falls below the strike price A by the same amount as the premium received from selling the put. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta gamma -- --- -- theta vega - -- - Delta: Increases towards 1 as the underlying falls and the sold option moves in-themoney. Gamma: Highest around at-the-money and approaching expiry. Theta: Value of position will increase as sold option loses time value. Vega: Value of position will decrease as expected volatility increases. Vega will be highest the closer the underlying is to the strike, and the longer the time to maturity. 14 5. Long Call Spread 1 month to expiry 3 months to expiry expiry B profit price of underlying loss A LIFFE CONNECT Strategy code: D. The trade: Buy a call (A), sell call at higher strike (B). Market expectation: Market bullishvolatility neutral. The spread has the advantage of being cheaper to establish than the purchase of a single call, as the premium received from the sold call reduces the overall cost. The spread offers a limited prot potential if the underlying rises and a limited loss if the underlying falls. Prot and loss characteristics at expiry: Prot: Limited to the difference between the two strikes minus net premium cost. Maximum prot occurs where the underlying rises to the level of the higher strike B or above. Loss: Limited to any initial premium paid in establishing the position. Maximum loss occurs where the underlying falls to the level of the lower strike A or below. Break-even: Reached when the underlying is above strike A by the same amount as the net cost of establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta gamma 0 - theta - 0 vega 0 - Delta: The highest level will be between the strikes A-B. Below strike A or above strike B, the delta will tend to fall towards zero. Gamma: Positive if underlying closer to strike A, negative if underlying closer to strike B, neutral if around midpoint A-B. Theta: Negative if underlying closer to strike A, positive if underlying closer to strike B, neutral if around midpoint A-B. Vega: Positive if underlying closer to strike A, negative if underlying closer to strike B, neutral if around midpoint of A-B. NB The long call spread and the short put spread create near identical positions. 15 6. Short Put Spread 1 month to expiry 3 months to expiry expiry B profit price of underlying loss A LIFFE CONNECT Strategy code: D. The trade: Sell a put (B), buy put at a lower strike (A). Market expectation: Market bullishvolatility neutral. The Short Put at B aims to take advantage of a bullish market and the premium gained affords some downside protection with a Long Put at A. The spread offers a limited prot potential if the underlying rises and a limited loss if the underlying falls. Prot and loss characteristics at expiry: Prot: Limited to the net premium credit. Maximum prot occurs where underlying rises to the level of the higher strike B or above. Loss: Maximum loss occurs where the underlying falls to the level of the lower strike A or below. Break-even: Reached when the underlying is below strike B by the same amount as the net credit of establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta gamma 0 - theta - 0 vega 0 - Delta: The highest level will be between the strikes A-B. Below strike A or above strike B, the delta will tend to fall towards zero. Gamma: Positive if underlying closer to strike A, negative if underlying closer to strike B, neutral if around midpoint of A-B. Theta: Negative if underlying closer to strike A, positive if underlying closer to strike B, neutral if around midpoint of A-B. Vega: Positive if underlying closer to strike A, negative if underlying closer to strike B, neutral if around midpoint of A-B. 16 7. Short Call Spread 1 month to expiry 3 months to expiry expiry profit A price of underlying loss B LIFFE CONNECT Strategy code: D. The trade: Sell a call (A), buy call at higher strike (B). Market expectation: Market bearishvolatility neutral. The Short Call at A aims to take advantage of a bearish market and the premium gained affords some upside protection with a Long Call at B. The spread offers a limited prot if the underlying falls and a limited loss exposure if the underlying rises. Prot amp loss characteristics at expiry: Prot: Limited to the net premium credit. Maximum prot occurs where underlying falls to the level of the lower strike A or below. Loss: Limited to the difference between the two strikes minus the net credit received in establishing the position. Maximum loss occurs where the underlying rises to the level of the higher strike B or above. Break-even: Reached when the underlying is above strike price A by the same amount as the net credit of establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta - -- - gamma - 0 theta 0 - vega - 0 Delta: The highest level will be between the strikes A-B. Below strike A or above strike B, the delta will tend to fall towards zero. Gamma: Negative if underlying closer to strike A, positive if underlying closer to strike B, neutral if around midpoint of A-B. Theta: Positive if underlying closer to strike A, negative if underlying closer to strike B, neutral if around midpoint of A-B. Vega: Negative if underlying closer to strike A, positive if underlying closer to strike B, neutral if around midpoint of A-B. NB: The Short call spread and the long put spread create near identical positions. 17 8. Long Put Spread 1 month to expiry 3 months to expiry expiry profit A price of underlying loss B LIFFE CONNECT Strategy code: D. The trade: Buy a put (B), sell put at lower strike (A). Market expectation: Market bearishvolatility neutral. The spread has the advantage of being cheaper to establish than the purchase of a single put, as the premium received from the sold put reduces the overall cost. The spread offers a limited loss exposure if the underlying rises, and a limited prot if the underlying falls. Prot amp loss characteristics at expiry: Prot: Limited to the difference between the two strikes minus net premium cost. Maximum prot occurs where underlying falls to the level of the lower strike A or below. Loss: Limited to the initial premium paid in establishing the position. Maximum loss occurs where the underlying rises to the level of the higher strike B or above. Break-even: Reached when the underlying is below strike price B by the same amount as the net cost of establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta - -- - gamma - 0 theta 0 - vega - 0 Delta: The highest level will be between the strikes A-B. Below strike A or above strike B, the delta will tend to fall towards zero. Gamma: Negative if underlying closer to strike A, positive if underlying closer to strike B, neutral if around midpoint of A-B. Theta: Positive if underlying closer to strike A, negative if underlying closer to strike B, neutral if around midpoint of A-B. Vega: Negative if underlying closer to strike A, positive if underlying closer to strike B, neutral if around midpoint of A-B. 18 9. Long Combo 1 month to expiry 3 months to expiry expiry profit B price of underlying A loss LIFFE CONNECT Strategy code: J. The trade: Sell a call (B), buy put at lower strike (A). Has same prole as synthetic split strike short future. Market expectation: Market bearishvolatility neutral. The riskreward prole is similar to that of a short future except that there is a plateau (A-B) over which there will be no change in protloss. The plateau makes this a more suitable trade than a short future if volatility expectations are uncertain. Prot amp loss characteristics at expiry: Prot: Unlimited in a falling market. Loss: Unlimited in a rising market. Break-even: Depending on the strikes chosen, the position may yield a small premium cost or credit. If the position is established at a net cost, break-even will occur where the market falls below point A by the same amount. If the position is established at a credit, break-even will occur where the market rises above point B by the same amount. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta - - - gamma 0 - theta - 0 vega 0 - Delta: The further the position from A or B, the nearer the delta will be towards -1. Gamma: Positive at A, negative at B, neutral around midpoint of A-B. Theta: Slightly negative at A, slightly positive at B, neutral around midpoint of A-B. Vega: Slightly positive at A, slightly negative at B, neutral around midpoint of A-B. 19 10. Short Combo 1 month to expiry 3 months to expiry expiry profit A price of underlying B loss LIFFE CONNECT Strategy code: J. The trade: Buy a call (B), sell put at lower strike (A). Same prole as synthetic split strike long future. Market expectation: Market bullishvolatility neutral. The riskreward prole is similar to that of a long future except that there is a plateau (A-B) in which there is no change in protloss. The plateau makes this a more suitable trade than a long future if volatility expectations are uncertain. Prot amp loss characteristics at expiry: Prot: Unlimited in a rising market. Loss: Unlimited in a falling market. Break-even: Depending on the strikes chosen, establishing the position may yield a small premium cost or credit. If the position is created at a cost, break-even will occur where the market rises above point B by this amount. If the position is established at a credit, the break-even point will occur if the market falls below point A by the same amount. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta gamma - 0 theta 0 - vega - 0 Delta: The further the position is from A or B, the nearer the delta will move towards 1. Gamma: Negative at A, positive at B, neutral around midpoint of A-B. Theta: Slightly positive at A, slightly negative at B, neutral around the mid point A-B. Vega: Slightly negative at A, slightly positive at B, neutral around midpoint of A-B. 20 11. Long Straddle 1 month to expiry 3 months to expiry expiry profit price of underlying ATM loss A LIFFE CONNECT Strategy code: S. The trade: Buy a put (A), buy call at same strike. Market expectation: Market neutralvolatility bullish. With the underlying at A and an unknown directional move or increase in volatility is anticipated. Prot amp loss characteristics at expiry: Prot: Unlimited for an increase or decrease in the underlying. Loss: Limited to the premium paid in establishing the position. Will be greatest if the underlying is at strike A, at expiry. Break-even: Reached if the underlying rises or falls from strike A by the same amount as the premium cost of establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta -- 0 gamma theta - --- - vega Delta: Neutral (assumed at-the-money position), becomes highly positive (negative) for large increases (decreases) in underlying. As a volatility trade, the position would be kept delta neutral with dynamic hedging until it is closed out or is altered to take account of a clear change of market direction. Gamma: Highest when at-the-money and approaching expiry. Theta: Value of position will decrease as the options lose time value. Theta may be positive if the position is far in-the-money andor close to expiry. Vega: Value of position will increase as expected volatility increases. 21 12. Short Straddle 1 month to expiry 3 months to expiry expiry A profit price of underlying ATM loss LIFFE CONNECT Strategy code: S. The trade: Sell a put (A), sell call at same strike. Market expectation: Market neutralvolatility bearish. With the underlying at A and a period of low or decreasing volatility is anticipated, and the underlying is not expected to move dramatically. Prot amp loss characteristics at expiry: Prot: Limited to the credit received from establishing the position. Highest if the market settles at A. Loss: Unlimited for both an increase or decrease in the underlying. Break-even: Reached if the underlying rises or falls from strike A by the same amount as the premium received from establishing the position. Market sensitivity at 30 days to expiry: underlying down at-the-money up delta 0 -- gamma -- --- -- theta vega - -- - Delta: Neutral (presumed at-the-money position), becomes highly negative (positive) for large increases (decreases) in the underlying. As a volatility trade, the position would be kept delta neutral with dynamic hedging until it is closed out or is altered to take account of a clear change of market direction. Gamma: Highest when at-the-money and approaching expiry. Theta: Value of position will increase as the options lose time value. Theta may be negative if the position is far out-of-the-money andor close to expiry. Vega: Value of position will decrease as expected volatility increases. 22 13. Long Strangle 1 month to expiry 3 months to expiry expiry profit price of underlying ATM loss A B LIFFE CONNECT Strategy code: K. The trade: Buy a put (A), buy a call at higher strike (B). Market expectation: Market neutralvolatility bullish. The holder expects a major movement in the market but is unsure as to its direction. A larger directional move is needed than a straddle in order to yield a prot but if the market stagnates, losses will be less. Prot amp loss characteristics at expiry: Prot: The prot potential is unlimited although a substantial directional movement is necessary to yield a prot for both a rise or fall in the underlying. Loss: Occurs if the market is static limited to the premium paid in establishing the position. Break-even: Occurs if the market rises above the higher strike price at B by an amount equal to the cost of establishing the position, or if the market falls below the lower strike price at A by the amount equal to the cost of establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta -- 0 gamma theta - -- - vega Delta: Neutral (presumed at-the-money position), becomes highly positive (negative) for large increases (decreases) in underlying. Gamma: Will be highest at strikes A and B but will tend to decrease as the underlying falls or rises signicantly. Theta: Time decay will act against the holder of the position. Vega: The position will increase in value as volatility rises. NB: Whilst the expiry prole is similar to that of the Long Guts, the difference relates to premium outlay. With the Long Strangle strategy you are buying two out of-the-money options (with a Long Guts both options are in the-money). 23 14. Short Strangle 1 month to expiry 3 month to expiry expiry profit A B price of underlying ATM loss LIFFE CONNECT Strategy code: K. The trade: Sell a put (A), sell call at higher strike (B). Market expectation: Direction neutralvolatility bearish. The holder expects low volatility and no major directional move. More cautious than a straddle as prot potential spans a larger range although maximum potential prots will be lower. Prot amp loss characteristics at expiry: Prot: Limited to the premium received. Will be highest if the underlying remains within the market level A-B. Loss: Unlimited for a sharp move in the underlying in either direction. Break-even: reached if the underlying falls below strike A or rises above strike B by the same amount as the premium received in establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta 0 -- gamma -- --- -- theta vega - -- - Delta: Neutral (presumed at-the-money position), becomes highly negative (positive) for large increases (decreases) in the underlying. Gamma: Highest at strikes A and B but will tend to decrease as the underlying falls or rises signicantly. Theta: Increase in value as options decay. Vega: Value of position will decrease as volatility increases. NB: Whilst the expiry prole is similar to that of the Long Guts, the difference relates to premium outlay. With the Long Strangle strategy you are selling two out of-the-money options (with a Long Guts both options are in the-money). 24 15. Long Guts 1 month to expiry 3 months to expiry expiry profit ATM price of underlying loss B A LIFFE CONNECT Strategy code: G. The trade: Buy a call (A), buy put at higher strike (B). Market expectation: Market neutralvolatility bullish. The market is at, or about the A-B range and a large directional move in the underlying is anticipated. Position has characteristics comparable to an in-the-money strangle. Prot amp loss characteristics at expiry: Prot: Unlimited in a rising or falling market. A substantial directional movement is required however. Loss: Limited to the initial premium paid less the difference between A and B occurs if the underlying remains within the range A-B. Break-even: Reached if the underlying rises above the higher strike price B by the amount equal to the cost of establishing the position less A-B, or if the underlying falls below the lower strike price A by the amount equal to the cost of establishing the position less A-B. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta -- 0 gamma theta - -- - vega Delta: Neutral (presumed at-the-money position). Becomes highly positive (negative) for large increases (decreases) in the underlying. Gamma: Will be highest between strikes A and B and approaching expiry. Theta: Value of position will decrease as options lose time value. Vega: Value of position will increase as implied volatility increases. NB: Whilst the expiry prole is similar to that of the Long Strangle, the difference relates to premium outlay. With the Long Guts strategy you are buying two in-the-money options (with a Long Strangle both options are out-of-the-money). 25 16. Short Guts 1 month to expiry 3 months to expiry expiry profit A B price of underlying ATM loss LIFFE CONNECT Strategy code: G. The trade: Sell a call (A), sell a put at higher strike (B). Market expectation: Direction neutralvolatility bearish. In this case the underlying is at, or about the A-B range and is expected to remain within this band. Prot amp loss characteristics at expiry: Prot: Limited to the net premium received less the difference between A and B occurs if the underlying remains within the range A-B. Loss: Unlimited in a rising or falling market. A substantial directional movement is required however. Break-even: Reached if the underlying falls below the lower strike price A by the amount equal to the premium received from establishing the position less A-B, or if the underlying rises above strike price B by the amount equal to the premium received from establishing the position less A-B. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta 0 -- gamma -- --- -- theta vega - -- - Delta: Neutral (presumed at-the-money position). Becomes highly negative (positive) for large increases (decreases) in the underlying. Gamma: Will be highest between strikes A and B and approaching expiry. Theta: Value of position will increase as options lose time value. Vega: Value of position will decrease as implied volatility increases. NB: Whilst the expiry prole is similar to that of the Short Strangle, the difference relates to premium outlay. With the Short Guts strategy you are selling two in-the-money options (with a Short Strangle both options are out-of-the-money). 26 17. Long Buttery 1 month to expiry 3 months to expiry expiry profit B price of underlying ATM A time decay C loss LIFFE CONNECT Strategy code: B. The trade: Buy put (or call) A, sell two puts (or calls) at higher strike B, buy put (or call) at an even higher strike C. Market expectation: Direction neutralvolatility bearish. In this case, the holder expects the underlying to remain around strike B, or it is felt that there will be a fall in implied volatility. Position is less risky than selling straddles or strangles as there is a limited downside exposure. Prot amp loss characteristics at expiry: Prot: Maximum prot limited to the difference in strikes between A and B minus the net cost of establishing the position. Maximised at mid strike B (assuming A-B and B-C are equal). Loss: Maximum loss limited to the net cost of the position for either a rise or a fall in the underlying. Break-even: Reached when the underlying is higher than A or lower than C by the cost of establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta 0 - gamma - -- - theta - - vega - -- - Delta: Neutral (assuming an at-the-money position). Delta becomes more positive as underlying moves to A, negative as the underlying moves to C. Gamma: Highest at or about strike B. Below strike A, or above strike C, the gamma will tend to decline. May become positive at greater distances from B. Theta: Time decay will be negligible until the nal month of the contract. Decay will benet the holder between underlying levels A and C, being greatest at B. If the underlying moves outside this area, decay will act against holder. Vega: Increased volatility will reduce the value of the position. Volatility may have a positive impact if the underlying is below A or above C by a sufcient margin. 27 18. Short Butterfly 1 month to expiry 3 months to expiry expiry profit C A ATM price of underlying loss B LIFFE CONNECT Strategy code: B. The trade: Sell put (or call) A, buy two puts (or calls) B, sell put (or call) C. Market expectation: Market neutralvolatility bullish. In this case the holder expects a directional move in the underlying, or a rise in implied volatility. Prot amp loss characteristics at expiry: Prot: Maximum prot is the net credit received in establishing the position and will occur if there is a sufcient directional move of the underlying, in either direction. Loss: Limited to the difference in strikes between A and B, minus the net credit in establishing the position. Break-even: Reached when the underlying is higher than A or lower than C by the credit received from establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta - 0 gamma theta - - - vega - - Delta: Neutral (assumed at-the-money spread). Delta becomes more positive as underlying moves to C, negative as the underlying moves to A. Gamma: Highest at or about strike B and will tend to decline as the market moves in either direction from this point. May become negative at greater distances from B. Theta: Time decay will be negligible until the nal month of the contract. Decay will act against the holder between underlying levels A and C, being greatest at B. If the underlying moves outside this area, decay will benet the holder. Vega: Increased volatility will increase the theoretical value of the position. Volatility may have a negative impact if the underlying is below A or above C by a sufcient margin. 28 19. Long Condor 1 month to expiry 3 months to expiry expiry profit B C price of underlying ATM A D loss LIFFE CONNECT Strategy code: W. The trade: Buy put (call) at A sell put (call) at two higher strikes B, C buy put (call) at yet higher strike D. Market expectation: Direction neutralvolatility bearish. A Long Condor allows for a greater degree of volatility and hence a wider band of prot potential than a Long Buttery. Prot and loss characteristics at expiry: Prot: Maximised where the underlying settles between the two strike prices B and C, but will decline as the market rises, or falls beyond these strikes. Loss: Occurs if the underlying rises towards strike D or falls towards strike A. Will be limited to the cost of establishing the position for either a rise or a fall in the underlying. Break-even: Lower break-even point reached when underlying reaches the lower strike price A plus the cost of establishing the spread, and the higher break-even when the underlying reaches the level of the higher strike D minus the cost of establishing the spread. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta 0 -- gamma - -- - theta - - vega - -- - Delta: Neutral (assumed at-the-money position). Delta becomes more positive as underlying moves to A, negative as the underlying moves to D. Gamma: Highest at or about strikes B and C. Below A, or above D, gamma will begin to decline. May become positive as the underlying moves further away from the ATM position. Theta: Time decay will be negligible until the nal month of the contract. Decay will benet the holder between underlying levels A and D, being greatest between B and C. If the underlying moves outside this area, decay will act against holder. Vega: Increased volatility will act against the holder. Volatility may have a positive impact if the underlying is below A or above D by a sufcient margin. 29 20. Short Condor 1 month to expiry 3 months to expiry expiry profit D A price of underlying ATM C loss B LIFFE CONNECT Strategy code: W. The trade: Sell put (call) at A buy put (call) at two higher strikes B, C sell put (call) at yet higher strike D. Market Expectation: Direction neutralvolatility bullish. Holder expects the market to move signicantly, or volatility to rise, but the direction is uncertain. A Short Condor will require a larger directional move than a buttery in order to yield a prot. Prot amp loss characteristics at expiry: Prot: Limited and will occur if the market moves above the highest strike (D) or below the lower strike at A. Loss: Maximum losses are limited and will occur if the market remains between the exercise prices B and C. Break-even: Lower break even reached when underlying reaches the lower strike price A plus the net credit received from establishing the position, and the higher breakeven when the underlying reaches the level of the higher strike price D minus the credit received from establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta -- 0 gamma theta - - - vega - - Delta: Neutral (assumed at-the-money spread). Delta becomes more positive as underlying moves to D, negative as the underlying moves to A. Gamma: Highest between strikes B and C and will tend to decline as the market moves in either direction from this point. May become negative as the underlying moves further away from the ATM position. Theta: Time decay will be negligible until the nal month of the contract. Decay will act against the holder between underlying levels B and C. If the underlying moves outside this area, decay will benet the holder. Vega: Increased volatility will increase the theoretical value of the position. Volatility may have a negative impact if the underlying is below A or above D by a sufcient margin. 30 21. Long Iron Butterfly 1 month to expiry 3 months to expiry expiry profit C A ATM price of underlying loss B LIFFE CONNECT Strategy code: I. The trade: Buy Straddle, sell Strangle with strike prices above and below the strike price of the Straddle, i. e. Sell a put (A), buy a put and a call at higher strike (B), sell a call at an even higher strike (C). Market expectation: Direction neutralvolatility bullish. Holder expects a market move in either direction. The position will also benet from an increase in volatility. Prot amp loss characteristics at expiry: Prot: Limited maximised where the underlying rises to strike C or falls to strike A. Loss: Limited to the net debit in establishing the position, greatest if underlying is at B. Break-even: Reached when underlying is above or below strike price B by the same amount as the initial debit. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta -- 0 gamma theta - - - vega - - Delta: Neutral (assumed at-the-money). Becomes highly positive (negative) for large decreases (increases) in the underlying. Gamma: Highest at or about strike B, and will tend to decline as the market moves in either direction from this point. May become negative at greater distances from B. Theta: Time decay will be negligible until the nal month of the contract. Decay will act against the holder between underlying levels A and C, being greatest at B. If the underlying moves outside this area, decay will benet the holder. Vega: Value of position will increase as expected volatility increases. 31 22. Short Iron Butterfly 1 month to expiry 3 months to expiry expiry B profit price of underlying C A loss LIFFE CONNECT Strategy code: I. The Trade: Sell Straddle, buy Strangle with strike prices above and below the strike price of the Straddle, i. e. Buy put (A), sell put and call at higher strike (B), buy call at equally higher strike (C). Market expectation: Direction neutralvolatility bearish. If the underlying is at, or about strike B and is expected to remain at this level, or it is felt that volatility will fall. Prot amp loss characteristics at expiry: Prot: Limited to the net credit in establishing the position. Maximised when the underlying is at B. Loss: Limited loss occurs if there is a directional move in the market. Maximised at the lower strike A, and the higher strike C. Break-even: Reached when underlying is above or below strike price B by the same amount as the net credit in establishing the position. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta 0 -- gamma - -- - theta - - vega - -- - Delta: Neutral (assumed at-the-money position). Gamma: Gamma will be highest at market level B and lowest if the market falls below A or rises above market level C. May become positive at greater distances from B. Theta: The position will accrue time value most rapidly at B. If the market moves outside of the A-C band, time decay will move against the holder. 32 23. Long Iron Condor D A 1 month to expiry 3 months to expiry expiry profit ATM price of underlying C B loss LIFFE CONNECT Strategy code: 5. The Trade: Buy strangle, sell strangle with strike prices outside those of the bought strangle, i. e. sell a put (A), buy a put at higher strike (B), buy a call at even higher strike (C), sell a call at even higher strike (D). This trade is only valid for FTSE 100 Index option contracts. Market expectation: Direction neutralvolatility bullish. Holder expects the market to move signicantly, or volatility to rise, but the direction is uncertain. A Long Iron Condor will require a larger directional movement than an Iron Buttery in order to yield a prot. Prot amp loss characteristics at expiry: Prot: Limited and will occur if the market moves to or above the highest strike (D) or to or below the lowest strike (A). Loss: Maximum losses are limited and will occur if the market remains at or between the strikes B and C. Break-even: Lower break-even reached when underlying falls below strike price B by the amount of the premium paid. Upper break-even reached when underlying rises above strike price C by the amount of premium paid. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta -- 0 gamma theta - - - vega - - Delta: Neutral (assumed at-the-money position). Delta becomes more positive as underlying moves to D, negative as the underlying moves to A. Gamma: Highest between strikes B and C and will tend to decline as the market moves in either direction from this point. May become negative as the underlying moves further away from the ATM position. Theta: Time decay will be negligible until the nal month of the contract. Decay will act against the holder between B and C. If the underlying moves outside this area, decay will benet the holder. Vega: Increased volatility will increase the theoretical value of the position. Volatility may have a negative impact if the underlying is below A or above D by a sufcient margin. 33 24. Short Iron Condor 1 month to expiry 3 months to expiry expiry C profit B ATM price of underlying loss D A LIFFE CONNECT Strategy code: 5. The trade: Sell strangle, buy strangle with strike prices outside those of the sold strangle, i. e. buy a put (A), sell a put at higher strike (B), sell a call at even higher strike (C), buy a call a even higher strike (D). This trade is only valid for FTSE 100 Index option contracts. Market expectation: Direction neutralvolatility bearish. A Short Iron Condor allows for a greater degree of volatility and hence a wider band of prot potential than a Short Iron Buttery. Prot amp loss characteristics at expiry: Prot: Maximised where the underlying remains at or within the exercise prices B and C, but will decline as the market rises or falls beyond these strikes. Will be limited to the net premium received for the trade. Loss: Losses are limited, and will occur if the underlying rises to or above strike D or falls to or below strike A. Break-even: Lower break-even reached when underlying falls below strike price B by the amount of the premium received. Upper break-even reached when underlying rises above strike price C by the amount of premium received. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta 0 -- gamma - -- - theta - - vega - -- - Delta: Neutral (assumed at-the-money position). Delta becomes more positive as underlying moves to A, negative as the underlying moves to D. Gamma: Highest between strikes B and C and will tend to decline as the market moves in either direction from this point. May become positive as the underlying moves further away from the ATM position. Theta: Time decay will be negligible until the nal month of the contract. Decay will benet the holder between B and C. If the underlying moves outside this area, decay will act against the holder. Vega: Increased volatility will act against the holder. Volatility may have a positive impact if the underlying is below A or above D by a sufcient margin. 34 25. Long Call Strip 1 month to expiry 3 months to expiry expiry B profit price of underlying D C loss B A LIFFE CONNECT Strategy code: M. The trade: Buy call at strike A, buy calls at higher strike prices. Between 3 and 8 strikes may be used in total, with one call option purchased at each. In the graph above, a 4-option strip is shown. All call options must be for the same expiry month. This strategy is not available for individual equity options or commodity options. Market expectation: Direction bullishvolatility bullish. A long call strip gives the holder an increased exposure to a positive movement in the underlying price. Prot amp loss characteristics at expiry: Prot: Unlimited in a rising market. Loss: Limited to the initial premium. Break-even: There will be a single break-even position, but the position in relation to the strikes will depend on the strike prices involved and the premium paid. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta gamma theta -- --- -- vega Delta: Increases as the underlying rises. The maximum level of delta depends on the number of calls in the strip, e. g. with 4 calls, the combined delta will tend to 4 as the underlying increases. Gamma: Highest between the highest and lowest strike prices. High gamma will be focussed on the area around each strike price as the strategy approaches expiry. Theta: Time decay will act against the holder of a long call strip. Vega: The value of the position will increase as expected volatility increases. 35 26. Short Call Strip 1 month to expiry 3 months to expiry expiry B A B profit C D price of underlying loss LIFFE CONNECT Strategy code: M. The trade: Sell call at strike A, sell calls at higher strike prices. Between 3 and 8 strikes may be used in total, with one call option sold at each. In the graph above, a 4-option strip is shown. All call options must be for the same expiry month. This strategy is not available for individual equity options or commodity options. Market expectation: Direction neutral or bearishvolatility bearish. Prot amp loss characteristics at expiry: Prot: Limited to the initial premium received. Loss: Unlimited in a rising market. Break-even: There will be a single break-even position, but the position in relation to the strikes will depend on the strike prices involved and the premium paid. Market sensitivities at 30 days to expiry: underlying down at-the-money delta - -- up --- gamma -- --- -- theta vega -- --- -- Delta: Decreases as the underlying rises. The minimum level of delta depends on the number of calls in the strip, i. e. with 4 calls, the combined delta will tend to -4 as the underlying increases. Gamma: Highest between the highest and lowest strike prices. High gamma will be focussed on the area around each strike price as the strategy approaches expiry. Theta: Time decay will benet the holder of a short call strip. Vega: The value of the position will decrease as expected volatility increases. 36 27. Long Put Strip 1 month to expiry 3 months to expiry expiry B profit price of underlying D C B loss A LIFFE CONNECT Strategy code: M. The trade: Buy put at strike A, buy puts at lower strike prices. Between 3 and 8 strikes may be used in total, with one put option purchased at each. In the graph above, a 4-option strip is shown. All put options must be for the same expiry month. This strategy is not available for individual equity options or commodity options. Market expectation: Direction bearishvolatility bullish. A long put strip gives the holder an increased exposure to a decline in the underlying price. Prot amp loss characteristics at expiry: Prot: Unlimited in a falling market. Loss: Limited to the initial premium. Break-even: There will be a single break-even position, but the position in relation to the strikes will depend on the strike prices involved and the premium paid. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta --- -- - gamma theta -- --- -- vega Delta: Decreases as the underlying rises. The maximum level of delta depends on the number of puts in the strip - e. g. with 4 puts, the delta will tend to -4 as the underlying decreases. Gamma: Highest between the highest and lowest strike prices. High gamma will be focussed on the area around each strike price as the strategy approaches expiry. Theta: Time decay will act against the holder of a long put strip. Vega: The value of the position will increase as expected volatility increases. 37 28. Short Put Strip 1 month to expiry 3 months to expiry expiry B A profit B C price of underlying D loss LIFFE CONNECT Strategy code: M. The trade: Sell put at strike A, sell puts at lower strike prices. Between 3 and 8 strikes may be used in total, with one put option sold at each. In the graph above, a 4-option strip is shown. All put options must be for the same expiry month. This strategy is not available for individual equity options or commodity options. Market expectation: Direction neutral or bullishvolatility bearish. Prot amp loss characteristics at expiry: Prot: Limited to the initial premium received. Loss: Unlimited in a falling market. Break-even: There will be a single break-even position, but the position in relation to the strikes will depend on the strike prices involved and the premium paid. Market sensitivities at 30 days to expiry: underlying down at-the-money delta up gamma -- --- -- theta vega -- --- -- Delta: Increases as the underlying rises. The minimum level of delta depends on the number of puts in the strip, e. g. with 4 puts, the combined delta will tend to 4 as the underlying decreases. Gamma: Highest between the highest and lowest strike prices. High gamma will be focussed on the area around each strike price as the strategy approaches expiry. Theta: Time decay will benefit the holder of a short put strip. Vega: The value of the position will decrease as expected volatility increases. 38 29. Long Calendar Spread This is a time value trade (involving the sale and purchase of options with different expiry months) and as such cannot be adequately plotted in terms of its riskreward prole. LIFFE CONNECT Strategy code: E. The trade: Sell near put (call), buy far put (call) at same strike. Market expectation: Direction neutralvolatility bullish. The near term option decays faster than the longer dated option, therefore the trade benets from an increase in volatility. Prot and loss characteristics at expiry (of near term option): The potential prot in a time value trade is derived from the time decay characteristics of options (see the description of Theta in the introduction). The near, written put (call) will decay at a rate faster than that of the far, purchased put (call) as it approaches expiry and it is this differential in the rate of time decay which may yield a prot. Assuming the options are at-the-money and the market remains at this level, the sold option will expire worthless and the purchased option, although not possessing intrinsic value, will hold time value. As the initial position is established at a loss (because the far option will command a higher premium), to yield a prot, the time value of the long option after the expiry of the short dated option must be such that its value is greater than the initial cost of establishing the position. 39 30. Long Diagonal Calendar Spread This is a time value trade (involving the sale and purchase of options with different expiry months) and as such cannot be adequately plotted in terms of its riskreward prole. LIFFE CONNECT Strategy code: F. The trade: Sell near put (call), buy far put (call) at a different strike. Market expectation: Expected to prot from time-decay differential and an increase in volatility. In addition, the position is suitable for a directional view on the underlying, e. g. sell Sep 99.00 call and buy Dec 101.00 call, giving a reduced cost calendar spread trade. Prot amp loss characteristics at expiry (of near option): The protability of the trade depends upon the differing time decay characteristics of the near, sold put (call) and the far, purchased put (call). The difference between this trade and that of a Calendar spread is that a diagonal spread involves options with different strike prices. As with a Calendar spread, the maximum loss will occur if the near, sold call (put) moves in-the-money and is exercised, followed by a fall (rise) in the market rendering the purchased call (put) worthless on expiry. 40 31. Long Straddle Calendar Spread This is a time value trade (involving the simultaneous sale and purchase of straddles with different expiry months but same strikes), and as such cannot be adequately plotted in terms of its riskreward prole. LIFFE CONNECT Strategy code: N. The Trade: Sell Straddle in near month, buy Straddle in far month at same strike. Market expectation: The near Straddle decays faster than the longer dated Straddle. The trade benets from an increase in volatility. Prot amp loss characteristics at expiry (of near straddle): The potential prot in this trade arises as a result of the differing rates of time decay between the two straddles. Maximum prot will be realised if the sold straddle expires worthless and after this expiry, increased volatility or a directional move increases the value of the purchased straddle. Maximum loss will occur if the sold straddle is exercised and reduced volatility subsequently occurs, driving the purchased straddle into loss. 41 32. Long Diagonal Straddle Calendar Spread This is a time value trade (involving the sale and purchase of straddles with different expiry months), but with different strikes and as such cannot be adequately plotted in terms of its riskreward prole. LIFFE CONNECT Strategy code: P. The Trade: Sell Straddle in near month, buy Straddle in far month at different strike. Market expectation: Prot from time decay differential, benet from an increase in volatility, andor benet from a directional movement in the underlying (as the position involves straddles of different strikes, it is suitable for a directional view). Prot amp loss characteristics at expiry (of near straddle): The potential prot in this trade arises as a result of the differing rates of time decay between the two straddles. Maximum prot will be realised if the sold straddle expires worthless, and after this expiry, increased volatility drives the purchased straddle in-themoney. Alternatively, the purchased straddle can be sold for its time value before the expiry date. Maximum loss will occur if the sold call is exercised and the market subsequently moves unfavourably, driving the purchased position out-of-the-money such that it expires worthless or can be sold for its time value only. 42 33. Long Jelly Roll This is a time value trade (involving the sale and purchase of options with different expiry months) and as such cannot be adequately plotted in terms of its riskreward prole. LIFFE CONNECT Strategy code: A. The trade: Buy put, sell call at same strike price in near expiry month, sell put, buy call at same strike in far expiry month (the strike price in the far expiry need not be equal to the strike price in the near expiry). This trade is only valid for FTSE 100 Index option contracts. Market expectation: Direction neutralvolatility neutral. This trade consists of a short synthetic underlying in the near month and a long synthetic underlying in the far month. The holder will benet if the differential between the futures prices of the two expiries (or the cost of carry differential in the case of premium up front options) widens. Prot amp loss characteristics at expiry (of near synthetic): The potential prot of this trade is restricted as it arises from a widening of the futures price differential of the expiry months in question. After the expiry of the near term options, the holder is left with a long synthetic underlying position. The holder will therefore benet from a rising market after the rst expiry, and will be adversely affected by a falling market after the rst expiry. 43 34. Long Straddle Strip This is a time value trade (involving the purchase of options with different expiry months) and as such cannot be adequately plotted in terms of its risk reward prole. LIFFE CONNECT Strategy code: M. The trade: Buy between two and four straddles. Each straddle must be in a separate expiry month. This strategy is not available for individual equity options or commodity options. Market expectation: A long straddle strip gives the holder an increased exposure to an increase in volatility. Prot amp loss characteristics at expiry (of near straddle): The potential prot from this trade arises from either a signicant directional movement in the underlying, or an increase in the expected volatility of the underlying across the range of expiry months. Loss will occur if the value of the underlying remains stable andor the expected future volatility of the underlying falls. 44 35. Long Box profit price of underlying loss LIFFE CONNECT Strategy code: X. The trade: Buy a call and sell a put, buy a put and sell a call and at a higher strike. All four options should have the same expiry date. Market expectation: Direction neutralvolatility neutral. This is a locked trade, and hence its value is wholly independent of the price of the underlying. Where the synthetic long underlying price at one strike is trading at a lower price than the synthetic short underlying at the higher strike, such that the differential may be exploited. Prot and loss characteristics at expiry: If the pricing differential can be exploited, a prot will occur, the extent of the mis-pricing translating into the level of prot realised. The Box is regularly used by traders to close out positions near expiry. Generally traded at par (zero) for options on futures, and at the net cost of carry for index and equity options. Can be problematic if all positions are not closed out at exactly the same time. Market sensitivities at 30 days to expiry: As this is a form of arbitrage and prot is therefore independent of changes in the underlying, the value of the position will be independent of the market, hence: underlying down at-the-money up delta 0 0 0 gamma 0 0 0 theta 0 0 0 vega 0 0 0 Delta: Neutral Gamma: Neutral Theta: Neutral Vega: Neutral putcall parity ensures that implied volatility will be exactly the same for both a call and a put with the same strike and expiry. NB: A Box is simply a conversion at one exercise price and a reversal at a different exercise price. 45 36. Long Two by One Ratio Call Spread 1 month to expiry 3 months to expiry expiry profit A price of underlying loss B LIFFE CONNECT Strategy code: H. The trade: Sell a call (A), buy 2 calls at higher strike (B). Market expectation: Market bullishvolatility bullish. Holder expects the market to settle above B. The position is usually established by selling an at-the-money or close to at-the-money call (A), and buying two out-of-the-money calls (B), such that it can be established at a small net credit. Depending on the strikes chosen, the position could also be established at break-even or at a small premium cost. Prot amp loss characteristics at expiry: Prot: Unlimited if underlying rallies. At A or below, prot limited to net credit. Loss: Greatest loss occurs at higher strike B, and is the difference between strikes B-A, minus (plus) net credit (debit). Break-even: Lower break-even point is reached when the underlying exceeds the lower strike option A by the same amount as the net credit received (if initial position established at a net cost, there is no lower break-even point). Higher break-even point reached when intrinsic value of option A, is equal to the combined intrinsic value of the two higher strike options B, plus (minus) the net credit (debit). Market sensitivities at 30 days to expiry: Delta: Increases towards 1 as underlying rises. If, approaching expiry, the underlying is around strike A, the delta may become negative. Gamma: Highest at B and declines as the underlying rises above B. If, approaching expiry, the underlying is around strike A, the gamma may become negative. Theta: Value of position will decrease as the bought options are affected by time decay. However, if the underlying remains below, or around strike A, the theta may become positive. Vega: Value of position will increase as implied volatility increases. However, If approaching expiry, the underlying is around strike A, the vega may become negative. 46 37. Short Two by One Ratio Call Spread 1 month to expiry 3 months to expiry expiry B profit price of underlying A loss LIFFE CONNECT Strategy code: H. The trade: Buy a call (A), sell 2 calls at higher strike (B). Market expectation: Market neutralvolatility bearish. Holder expects that the market will not rally but will settle around point B. Position usually established by buying an at or close to-the-money call, and selling two out-of-the-money calls such that although it is a net short position, it may be established at a small cost (as in the above example). Depending on the strikes chosen, the position could also be established at break-even or at a small credit. Prot amp loss characteristics at expiry: Prot: Greatest prot occurs at higher strike B which is the difference between strikes B-A plus (minus) net credit (debit). Loss: Unlimited if underlying rallies. At A or below, loss limited to net cost. Break-even: Lower break-even reached when the underlying exceeds the lower strike option A, by the same amount as the net cost of the position (if initial position established at a net credit, there is no lower break-even point). Higher break-even point reached when intrinsic value of option A, plus (minus) the net credit (debit) from establishing the position, is equal to the combined intrinsic value of the two higher strike options B. Market sensitivities at 30 days to expiry: Delta: Approaches -1 as the underlying rises. If, approaching expiry, the underlying is around strike A, the delta may become positive. Gamma: Highest at point B and declines as the underlying rises above B. If, approaching expiry, underlying is around strike A, it may become positive. Theta: Value of position will increase as the short options are affected by time decay. If the underlying remains below, or around strike A, the theta may become positive. Vega: Value of position will decrease as implied volatility increases. If, approaching expiry, the underlying is around strike A and the vega may become positive. 47 38. Long Two by One Ratio Put Spread 1 month to expiry 3 months to expiry expiry profit B price of underlying loss A LIFFE CONNECT Strategy code: H. The trade: Sell a put (B), buy two puts at lower strike (A). Market expectation: Market bearishvolatility bullish. Holder expects market to fall below A. Position usually established by selling an at or close to the money put (B), and buying two out-of-the-money puts (A), such that although it is a net long position, it can be established at a small credit as in the above example. Depending on the strikes chosen, the position could also be established at break-even or at a small premium cost. Profit amp loss characteristics at expiry: Profit: Unlimited in a falling market. At B or above, profit limited to net credit. Loss: Greatest loss which occurs at lower strike A, is the difference between strikes B-A minus (plus) net credit (debit) Break-even: Lower break-even reached when the combined intrinsic value of the two purchased puts at A, plus (minus) the initial credit (debit) from establishing the position, are equal to the value of the written put B. Higher break-even point reached when intrinsic value of option B is equal to initial credit. If initial position established at a net cost, there is no higher break-even point. Market sensitivities at 30 days to expiry: Delta: Approaches -1 as underlying falls. If approaching expiry, the underlying is around strike A and the delta may become positive. Gamma: Highest at A and declines as the underlying falls below this point. If approaching expiry, the underlying is at B, the gamma may become negative. Theta: Value of position will decrease as the long options are affected by time decay. If the underlying remains above, or around strike B, the theta may become positive. Vega: Value of position will increase as implied volatility increases. If, approaching expiry, the underlying is around strike B and the vega may become negative. 48 39. Short Two by One Ratio Put Spread 1 month to expiry 3 months to expiry expiry A profit price of underlying B loss LIFFE CONNECT Strategy code: H. The trade: Buy a put (B), sell two puts at lower strike (A). Market expectation: Market neutralvolatility bearish. Holder expects market to settle around strike A, and feels that the market will not fall below A. Usually established by buying an at - the-money or close-to at-the-money put (B) and selling two out-of-the-money puts (A) such that it is established at a small cost. Depending on the strikes chosen, the position could also be established at break-even or at a small premium credit. Prot amp loss characteristics at expiry: Prot: Greatest at A, it is the difference between strikes A-B plus (minus) net credit (debit). Loss: Unlimited in a falling market. At B or above, loss limited to net cost. Break-even: Lower break-even point is reached when the combined intrinsic value of the options at A equals the intrinsic value of option B, plus (minus) the net credit (debit) from establishing the position. Higher break-even point reached when intrinsic value of option B, is equal to the debit from establishing the position. Market sensitivities at 30 days to expiry: Delta: Increases towards 1 as market falls. If however, approaching expiry, the underlying is around strike A and the delta may become negative. Gamma: Highest at point A and declines as underlying falls below A. If approaching expiry, the underlying is at B and the gamma may become positive. Theta: Value of position will increase as short options are affected by time decay. If however, the underlying remains above or around strike B, the theta may become negative. Vega: Value of position will decrease as implied volatility increases. If, however, approaching expiry, the underlying is at B and the vega may become positive. 49 40. Long Call Ladder 1 month to expiry 3 months to expiry expiry B profit C A price of underlying loss LIFFE CONNECT Strategy code: L. The trade: Buy a call (A), sell call at higher strike (B), sell call at an even higher strike (C). Market expectation: Direction bearishvolatility bearish. In this case the holder expects the market to settle between B and C but feels that volatility will not rise. Prot amp loss characteristics at expiry: Prot: Limited to the difference between strikes A and B plus (minus) net credit (debit). Greatest prot occurs between strikes B and C. Loss: Unlimited if underlying rallies. At A or below, loss limited to net cost. Break-even: Lower break-even reached when the underlying exceeds the lower strike option A, by the same amount as the net cost of the position. Higher break-even point reached when the intrinsic value of option A, plus (minus) the net credit (debit) from establishing the position, is equal to the intrinsic value of the two higher strike options at B and C. Market sensitivities at 30 days to expiry: Delta: Approaches -1 as underlying rises. If, approaching expiry, the underlying is around strike A, the delta becomes positive. Gamma: Usually negative. Highest between B and C. If, approaching expiry, the underlying is around strike A and the gamma becomes positive. Theta: Value of position will increase as the short options are affected by time decay. If the underlying remains below or around strike A, theta becomes slightly negative. Vega: Value of position will decrease as implied volatility increases. If, approaching expiry, the underlying is around strike A and the vega may become positive. 50 41. Short Call Ladder 1 month to expiry 3 months to expiry expiry profit C price of underlying loss A B LIFFE CONNECT Strategy code: L. The trade: Sell a call (A), buy call at higher strike (B), buy call at an even higher strike (C). Market expectation: Direction bullishvolatility bullish. Holder expects a substantial rise in the underlying market. Prot amp loss characteristics at expiry: Prot: Unlimited if underlying rallies. At A or below, prot limited to net credit. Loss: Limited to the difference between strikes A and B minus (plus) net credit (cost). Break-even: Lower break-even reached when the underlying exceeds the lower strike option A by the same amount as the net credit received, (if initial position established at a net cost, there is no lower break-even point). Higher break-even point reached when intrinsic value of option A, is equal to the intrinsic value of the two higher strike options at B and C, plus (minus) the net credit (debit) in establishing the position. Market sensitivities at 30 days to expiry: Delta: Increases towards 1 as underlying rises. If, approaching expiry, the underlying is around strike A, the delta becomes negative. Gamma: Highest between strikes B and C. If, approaching expiry, the underlying is around strike A, the gamma becomes negative. Theta: Value of position will decrease as the long options decay. If the underlying remains below, or around strike A, theta becomes slightly positive. Vega: Value of position will increase as implied volatility increases. If, approaching expiry, the underlying is around strike A, the vega may become slightly negative. 51 42. Long Put Ladder 1 month to expiry 3 months to expiry expiry profit A B price of underlying C loss LIFFE CONNECT Strategy code: L. The trade: Sell put (A), sell put at higher strike (B), buy put at an even higher strike (C). Market expectation: Direction bullishvolatility bearish. Holder expects underlying to (continue to) be between strikes A and B and rmly believes that the market will not fall. Prot amp loss characteristics at expiry: Prot: Limited to the difference B-C, plus (minus) net credit (debit). Maximised between strikes A and B. Loss: Unlimited if underlying falls. At C or above, loss limited to net cost of position. Break-even: Lower break-even reached when the intrinsic value of the purchased put C plus (minus) net credit (cost) is equal to the intrinsic value of the sold options A and B. Higher break-even reached when underlying falls below strike C by the same as the net cost of the position. Market sensitivities at 30 days to expiry: Delta: Positive. However, becomes negative if the underlying is around strike C approaching expiry. Gamma: Highest between A and B. If however, approaching expiry, the underlying is at C, the gamma becomes positive. Theta: Positive value of position will increase as short options decay. If however, approaching expiry, the underlying is above or around C, theta may become slightly negative. Vega: Negative value of position will decrease as implied volatility increases. If however, approaching expiry, the underlying is at C, the vega may become slightly positive. 52 43. Short Put Ladder 1 month to expiry 3 months to expiry expiry profit C price of underlying loss A B LIFFE CONNECT Strategy code: L. The trade: Buy put (A), buy put at higher strike (B), sell put at equally higher strike (C). Market expectation: Direction bearishvolatility bullish. Buyer expects a volatile market and additional prots can be made in a bearish market. Prot amp loss characteristics at expiry: Prot: Unlimited if underlying falls. At C or above, prot limited to the net credit. Loss: Limited to the difference between B and C minus (plus) net credit (debit). Break-even: Higher break-even reached when the market falls below C by the value of the net credit. Lower break-even reached when the intrinsic value of options A and B plus (minus) the net credit (debit) is equal to the intrinsic value of C. Market sensitivities at 30 days to expiry: Delta: Approaches -1 as underlying falls. If however, approaching expiry, the underlying is around strike B or C, the delta may become positive. Gamma: Maximum between points A and B. However if approaching expiry, the underlying is at C, the gamma may become negative. Theta: Value of position will decrease as long options are affected by time decay. If however, the underlying is above, or about C, the theta may become positive. Vega: Value of position will increase as implied volatility increases. If however, approaching expiry, the underlying is around C, the vega may become negative. 53 44. Synthetic Long Underlying expiry profit price of underlying loss LIFFE CONNECT Strategy code: r. The Trade: Buy call, sell put at same strike (generally the at-the-money strike). This strategy is effectively a Reversal without the sale of the underlying. Market Expectation: Market bullishvolatility neutral. Profit and loss characteristics at expiry: Prot: Unlimited in a rising market. Loss: Unlimited in a falling market. Break-even: If the position is opened at a net debit, break-even is reached when the underlying rises above the strike price of the strategy by the net amount of premium paid. If the position is created at a net credit, break-even occurs when the underlying falls below the strike price by the net premium received. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta Gamma 0 0 0 Theta 0 0 0 Vega 0 0 0 Delta: 1 since the strategy synthetically replicates a long underlying. Gamma: Zero. Delta of position is not subject to change. Theta: Zero. Positive theta of short put nets out against negative theta of long call. Vega: Zero. Positive vega of long call nets out against negative vega of short put. 54 45. Synthetic Short Underlying expiry profit price of underlying loss LIFFE CONNECT Strategy code: r. The Trade: Buy put, sell call at the same strike (generally the at-the-money strike). This strategy is effectively a Conversion without the purchase of the underlying. Market Expectation: Market bearishvolatility neutral. Prot and loss characteristics at expiry: Prot: Unlimited in a falling market Loss: Unlimited in a rising market Break-even: If the position is opened at a net debit, break-even is reached when the underlying falls below the strike price of the strategy by the net amount of premium paid. If the position is created at a net credit, break-even occurs when the underlying rises above the strike price by the net premium received. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta --- --- --- Gamma 0 0 0 Theta 0 0 0 Vega 0 0 0 Delta: 1 since the strategy synthetically replicates a short underlying. Gamma: Zero. Delta of position is not subject to change. Theta: Zero. Positive theta of short call nets out against negative theta of long put. Vega: Zero. Positive vega of long put nets out against negative vega of short call. 55 46. Long Call Spread versus Put 1 month to expiry 3 months to expiry expiry C profit price of underlying A B loss LIFFE CONNECT Strategy code: x. The Trade: Buy call (B), sell call at higher strike (C), sell put at any strike the short put will generally be at a strike lower than both calls (A). This spread has a similar prole to the long call spread, but the short put reduces the cost of the strategy due to the intake of premium. Market Expectation: Market bullishvolatility bearish. Prot and loss characteristics at expiry: Prot: Limited in a rising market. Loss: Unlimited in falling market. Break-even: If the position is opened at a net debit, break-even occurs when the underlying rises above strike B by the net amount of premium paid. If the position is created at a net credit, break-even is reached when the underlying falls below strike A by the same amount as the premium received. Market sensitivities at 30 days to expiry: Underlying down at-the-money Delta Gamma - -- - Theta Vega - -- - up Delta: Positive. Moves towards 1 as future nears strike A. Become less positive as underlying rises. Gamma: Negative. Highest when underlying is around strike B. Positive at B near expiry. Theta: Positive at A and C. Negative at B near expiry. Vega: Negative at A and C. Positive at B near expiry. 56 47. Short Call Spread versus Put 1 month to expiry 3 months to expiry expiry profit B A price of underlying loss C LIFFE CONNECT Strategy code: x. The Trade: Sell call (B), buy call at higher strike (C), buy put at any strike the long put will generally be at a strike lower than both calls (A). This spread has a similar prole to the short call spread, but the long put provides unlimited prot potential in a falling market. Market Expectation: Market bearishvolatility bullish. Prot and loss characteristics at expiry: Prot: Unlimited in a falling market Loss: Limited in a rising market Break-even: If the position is created at a net debit, break-even is reached when the underlying falls below strike A by the net amount of premium paid. If the position is opened at a net credit, break-even occurs when the underlying rises above strike B by the net premium received. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta --- -- - Gamma Theta - -- - Vega Delta: Negative. Moves towards 1 as future nears strike A. Become less negative as underlying rises. Gamma: Positive. Highest when underlying is around strike B. Negative at B near expiry. Theta: Negative at A and C. Positive at B near expiry. Vega: Positive at A and C. Negative at B near expiry. 57 48. Long Put Spread versus Call 1 month to expiry 3 months to expiry expiry profit A price of underlying C B loss LIFFE CONNECT Strategy code: y. The Trade: Buy put (B), sell put at lower strike (A), sell call at any strike the short call will generally be at a higher strike than both puts (C). The prole is similar to that of a long put spread, but with greater intake of premium due to the short call. Market Expectation: Market bearishvolatility bearish. Prot and loss characteristics at expiry: Prot: Limited in a falling market. Loss: Unlimited in a rising market. Break-even: If the position is created at a net debit, break-even is reached when the underlying falls below strike B by the net amount of premium paid. If the position is opened at a net credit, break-even occurs when the underlying rises above strike C by the premium received. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta - -- --- Gamma - -- - Theta Vega - -- - Delta: Negative. Moves towards 1 as underlying rises towards strike C. Gamma: Negative. Highest when underlying is around strike B. Positive at B near expiry. Theta: Positive at A and C. Negative at B near expiry. Vega: Negative at A and C. Positive at B near expiry. 58 49. Short Put Spread versus Call 1 month to expiry 3 months to expiry expiry profit B C loss price of underlying A LIFFE CONNECT Strategy code: y. The Trade: Sell put (B), buy put at lower strike (A), buy call at any strike the long call will generally be at a higher strike than both puts (C). The prole is similar to that of a short put spread, but the long call provides unlimited prot potential should the underlying rise above C. Market Expectation: Market bullishvolatility bullish. Prot and loss characteristics at expiry: Prot: Unlimited in a rising market. Loss: Limited in a falling market. Break-even: If the position is opened at a net credit, break-even occurs when the underlying falls below strike B by the premium received. If the position is opened at a net debit, breakeven is reached when the underlying rises above strike C by the amount of premium paid. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta Gamma Theta - -- - Vega Delta: Positive. Moves towards 1 as underlying rises towards strike C. Gamma: Positive. Highest when underlying is around strike B. Negative at B near expiry. Theta: Negative at A and C. Positive at B near expiry. Vega: Positive at A and C. Negative at B near expiry. 59 50. Long Straddle versus Call 1 month to expiry 3 months to expiry expiry profit B price of underlying loss A LIFFE CONNECT Strategy code: z. The Trade: Buy call (A), buy put at same strike, sell call at any strike (B) the short call will generally be at a strike higher than the straddle. This spread provides similar exposure to the long straddle, but with cheaper initial outlay due to the premium received from the short call. Market Expectation: Market neutral to bearishvolatility bullish. Prot and loss characteristics at expiry: Prot: Unlimited in falling market. Limited in rising market. Loss: Limited in a static market. Break-even: Reached when underlying moves in either direction from A by the net amount of premium paid. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta --- - Gamma - Theta - -- - Vega - Delta: Negative. Moves towards 1 as underlying falls below strike of straddle. Gamma: Positive. Change in delta will have greatest effect around strike A. Theta: Time decay will have a negative effect on the value of the position. As the underlying rises, this effect becomes negligible. Vega: Positive. An increase in expected volatility will have a positive effect on the spread. This effect lessens as the underlying moves away from the strike of the straddle, particularly as it rises. 60 51. Short Straddle versus Call profit 1 month to expiry 3 months to expiry expiry A price of underlying B loss LIFFE CONNECT Strategy code: z. The Trade: Sell call (A), sell put at same strike (A), buy call at any strike (B) the long call will generally be at a higher strike than the straddle. The prole is similar to that of a short straddle, but loss in a rising market is limited by the long call. Market Expectation: Market neutralvolatility bearish. Prot and loss characteristics at expiry: Prot: Limited in a static market. Loss: Limited in a rising market. Unlimited in a falling market. Break-even: Reached when underlying moves in either direction from A by the amount of premium received. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta - Gamma - -- - Theta - Vega - -- - Delta: Positive. Moves towards 1 as underlying falls below strike of straddle. Gamma: Negative. Change in delta will have greatest effect around strike A. Theta: Time decay will have a positive effect on the value of the position. As the underlying rises, this effect becomes negligible. Vega: Negative. A decrease in expected volatility will have a positive effect on the spread. This effect lessens as the underlying moves away from the strike of the straddle, particularly as it rises. 61 52. Long Straddle versus Put 1 month to expiry 3 months to expiry expiry profit A price of underlying loss B LIFFE CONNECT Strategy code: z. The Trade: Buy call (B), buy put at same strike (B), sell put at any strike (A) generally the short put will be at a strike lower than the straddle. This spread offers similar exposure to the long straddle, but at a cheaper cost because of the premium taken in from the short put. Market Expectation: Market neutral to bullishvolatility bullish. Prot and loss characteristics at expiry: Prot: Unlimited in a rising market. Limited in a falling market. Loss: Limited in a static market. Break-even: Reached when the underlying moves in either direction from B by the amount of premium paid. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta - Gamma - Theta - -- - Vega - Delta: Positive. Moves towards 1 as the underlying rises above the strike of the straddle. Gamma: Positive. Change in delta will have the greatest effect around strike B. Theta: Negative. Time decay will decrease the value of the spread, but as the underlying moves away from the strike of the straddle the effect of time decay lessens. In particular, as the underlying falls, the effect of time decay becomes negligible. Vega: Positive. Vega will be highest when the underlying is trading close to the strike of the straddle. 62 53. Short Straddle versus Put 1 month to expiry 3 months to expiry expiry B profit price of underlying A loss LIFFE CONNECT Strategy code: z. The Trade: Sell call (B), sell put at same strike, buy put at any strike (A) generally the long put will be at a strike lower than the straddle (A). This spread offers similar exposure to the short straddle, but the long put limits risk in a falling market. Market Expectation: Market neutralvolatility bearish. Prot and loss characteristics at expiry: Prot: Limited in a static market. Loss: Limited in a falling market. Unlimited in a rising market. Break-even: Reached when the underlying moves in either direction from B by the amount of premium received. Market sensitivities at 30 days to expiry: Underlying down at-the-money up Delta - --- Gamma - -- - Theta - Vega - -- - Delta: Negative. Moves towards 1 as underlying rises above the strike of the straddle. Gamma: Negative. Change in delta will have the greatest effect around strike B. Theta: Positive. Time decay will increase the value of the spread, but as the underlying moves away from the strike of the straddle, the effect of time decay lessens. In particular, as the underlying falls, the effect of time decay becomes negligible. Vega: Negative. Vega will be highest when the underlying is trading close to the strike of the straddle. 63 54. Long Volatility Trade profit Volatility increase Volatility decrease Underlying price loss LIFFE CONNECT Strategy code: V. The trade: Buy puts and buy underlying or buy calls and sell underlying to give zero net delta. The position is dynamic in that as the underlying moves and the delta changes, additional futures must be bought or sold to maintain delta neutrality. For stock contingent trades, the underlying leg will comprise the underlying shares rather than the futures contract. Market expectation: Market neutralvolatility bullish. This position is a pure trade on volatility such that an increase in implied volatility will benet the holder. Prot amp loss characteristics at expiry: Prot: Dependent on an increase in implied volatility as well as any prots from the future hedge and hedge rebalancing. Loss: Limited to the costs of establishing the position plus any loss in rebalancing the hedge. Break-even: (i) For a long put, long futures position, if the price of the underlying increases, break-even is obtained where the gain in the value of the futures position (less the initial premium and less the rebalancing cost) is equal to zero. If price falls, break-even is obtained where the loss on the futures position (less the intrinsic value of the put, plusminus the rebalancing cost) is equal to zero. (ii) For a long call, short futures position, if the underlying price increases, break-even is obtained where the gain in the call (less the loss in the future, plusminus the rebalancing cost) is equal to zero. If price falls, break-even is obtained where the gain on the futures (minus the loss on the call, plusminus the re-balancing cost) is equal to zero. Delta: Neutral. Gamma: Positive, the delta neutral position is highly sensitive to movement in the underlying, consequently the position requires dynamic hedging. Theta: Value of position will decrease as options decay. Vega: Value of position will increase as expected volatility increases. 64 55. Short Volatility Trade profit Volatility decrease Volatility increase Underlying price loss LIFFE CONNECT Strategy code: V. The trade: Sell puts and sell underlying or sell calls and buy underlying to give zero net delta. The position is dynamic in that as the underlying moves and the delta changes, additional futures must be bought or sold to maintain delta neutrality. For stock contingent trades, the underlying leg will comprise the underlying shares rather than the futures contract. Market expectation: Market neutralvolatility bearish. The position is a trade on volatility such that a decrease in implied volatility will benet the holder. Prot amp loss characteristics at expiry: Prot: Limited to the credit received from the sold options and any prot on rebalancing the hedge. Loss: The more implied volatility rises, the greater will be the potential losses. Break-even. (i) For a short put, short futures position, if the underlying price increases, break-even is obtained where the initial premium on the put, minus the loss on the futures, plusminus the rebalancing cost, is equal to zero. If price falls, the gain on the futures position, minus the loss on the put, plusminus the rebalancing cost is equal to zero. (ii) For a short call, long futures position, if the underlying price rises, break-even is obtained where the gain on the futures, minus the loss on the call, plusminus the rebalancing cost, is equal to zero. If price falls, break-even is obtained where the call premium, minus the loss on the futures, plusminus the rebalancing cost, is equal to zero. Delta: Neutral. Gamma: Negative, the delta neutral position is highly sensitive to movements in the underlying, consequently the position requires dynamic hedging. Theta: Value of position will increase as the options decay. Vega: Value of position will decrease as expected volatility increases. 65 56. ConversionReversal profit price of underlying loss LIFFE CONNECT Strategy code: R. The trade: Conversion: Sell call, buy put at same strike, buy underlying. Reversal: Buy call, sell put at same strike, sell underlying. Market expectation: Direction neutralvolatility neutral. A Conversion or Reversal is a locked trade and hence its value is wholly independent of the price of the underlying. The options position in a Conversion will create a synthetic short underlying and potential protloss will result from any pricing differential between this and the long underlying position. The options position within a Reversal will create a synthetic long underlying and so protloss realised will be xed to the difference between the price of the short underlying and the long synthetic underlying. Prot and loss characteristics at expiry: If the pricing differential can be exploited, a prot will occur. The extent of the mis-pricing between the underlying and synthetic underlying positions will translate into the level of prot realised. Market sensitivities at 30 days to expiry: underlying down at-the-money up delta 0 0 0 gamma 0 0 0 theta 0 0 0 vega 0 0 0 As this is a form of arbitrage and profit is therefore independent of changes in the underlying, the positions value will be independent of the market, hence: Delta: Neutral Gamma: Neutral Theta: Neutral Vega: Neutral putcall parity ensures that implied volatility must be the same for both a call and a put with the same strike and expiry. 66 Delta Neutral Strategies The remaining delta neutral strategy trades made available by LIFFE, as listed on page 6 are not described in detail here. As with the Volatility Trade on pages 64 and 65, and the ConversionReversal on page 66, these strategies consist of an options strategy superimposed with a position in the underlying instrument. This has the effect of creating a position which is delta neutral under the prevailing market conditions. In order to maintain delta neutrality, the underlying position may need to be adjusted should the underlying, the volatility or the time to expiry change. Positions in the underlying asset have no gamma, theta or vega. Therefore, whilst the delta of the options strategy will be affected by the addition of the underlying position, the remaining greeks will be unaffected. 67 68 LIFFE Options a guide to trading strategies LIFFE Administration and Management (a wholly owned subsidiary of LIFFE (Holdings) plc) Cannon Bridge House. 1 Cousin Lane. London EC4R 3XX. United Kingdom Telephone: 44 (0) 20 7623 0444 Fax: 44 (0) 20 7588 3624 liffe Registered in England no 1591809 294802022000US. View Full Document This note was uploaded on 10182015 for the course IF 10 taught by Professor Nouet during the Spring 03915 term at cole Suprieure d039Ingnieurs Lonard de Vinci. Klicka för att redigera dokumentuppgifterna