tailieunhanh - A Logical Approach to Actuarial Mathematics_6

Tham khảo tài liệu 'a logical approach to actuarial mathematics_6', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 122 Part 2 Options spreads Using the previous set of Marks and Spencer April options M S at 30 days until April expiry Strike April calls April puts Here you could pay for the 350 straddle and sell the 330-370 strangle at for a net debit of 14. This is similar to paying for the 350-370 call spread plus paying for the 350-330 put spread. Like the long call spread and the long put spread the distance between strikes of the long iron butterfly can be varied in order to adjust the risk return potential. Practically speaking underlyings do not move to zero or infinity within the life of an options contract there are always levels of support and resistance. It is realistic to place the short wings of this spread at these levels. The above choice of strikes views support resistance at approximately 6 per cent below or above the current price. This is a large but very possible move for Marks and Spencer. If you choose this strategy in the first place then you are expecting something out of the ordinary to happen. Note that the above strikes are widely separated and as a result the straddle component has a large exposure to the Greeks. This spread has a better return potential when the implied is increasing. A profit loss summary at expiry is as follows Debit from April 350 straddle Credit from April 330-370 strangle Total debit Upside break-even level straddle strike plus spread debit 350 14 364 Downside break-even level straddle strike minus spread debit 350 - 14 336 Maximum upside profit highest strike minus middle strike minus spread debit 370 - 350 - 14 6 Maximum downside profit middle strike minus lowest strike minus spread debit 350 - 330 - 14 6 Maximum loss cost of spread 14 12 Iron butterflies and iron condors combining straddles and strangles 123 The risk return ratio of this spread is 14 6 or 1 or