Liffe Options A Guide Til Trading Strategier

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Lang samtale Korttall Langt Langt Kortt Kortt Langt Langt Kortt Kortt Kortt Kortt Kortt Kortt Langt Langt Langt Spredt Langt Kort Kortt Kortt Langtidshandel Handel Kort Volatilitet Handel Long Straddle Short Straddle Long Strangle Kort Strangle Long Guts Short Guts Lang Buttery Short Buttery Long Condor Kort Condor Long Iron Buttery Kort Iron Buttery Lang Kalender Spread Lang Diagonal Kalender Spread Long Straddle Kalender Spread Lang Diagonal Straddle Kalender Spread Conversion Reversal Long Box Long Two By One Ratio Anropsspredning 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-opsjonsstrategier 32. Kort to-ett-forholdsoppringingsspredning 33. Langt to av One Ratio Put Spread 34. Short Two by One Ratio Put Spread 35. Long Call Ladder 36. Short Call Ladder 37. Long Put Ladder 38. Short Put Ladder 39. Syntetisk Lang Fremtid 40. Syntetisk Kort Fremtid 41. Lang Call Spread versus Put 42. Short Call Spread versus Put 43. Lang Put Spread versus Call 44. Kort Put Spread versus Call 45. Lang Straddle Versus Call 46. Short Straddle versus Ring 47. Lang rekkevidde mot Put 48. Kort rekkevidde mot Put 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 LIFFE Alternativ Strategier I nt roduction Hendelser de siste årene har fremhevet volatiliteten og usikkerheten som er en inneboende egenskap i dagens nasjonale markeder. LIFFEs omfattende utvalg av opsjonsstrategier gir ikke bare et bredt spekter av synspunkter og gjør det mulig for brukerne å få innflytelse, men gir fordelene med utførelse innenfor en enkelt transaksjon, noe som gjør det mulig å konkurrere med spredninger og redusert exchange. Futures 038 Options Strategy Guide Ved å bruke futures og alternativer, enten separat eller i kombinasjon, kan tilby utallige handelsmuligheter. De 25 strategiene i denne veiledningen er ikke ment å gi en komplett guide til enhver mulig handelsstrategi, men snarere et utgangspunkt. Hvorvidt innholdet vil vise seg å være de beste strategiene og oppfølgingstrinnene for deg, vil avhenge av din kunnskap om markedet, din risikobærende evne og dine handelspolitiske mål. Slik bruker du denne veiledningen - Denne publikasjonen ble utformet, ikke som en komplett guide til alle mulige scenarier, men som en brukervennlig håndbok som foreslår mulige handelsstrategier. Long Futures - Når du er bullish på markedet og usikker på volatilitet. Du vil ikke bli påvirket av volatilitetsendring. Men hvis du har en mening om volatilitet og den oppfatningen viser seg å være riktig, kan en av de andre strategiene ha større gevinstpotensial og eller mindre risiko. Long Synthetic Futures - Når du er bullish på markedet og usikker på volatilitet. Du vil ikke bli påvirket av volatilitetsendring. Men hvis du har en mening om volatilitet og den oppfatningen viser seg å være riktig, kan en av de andre strategiene ha større gevinstpotensial og eller mindre risiko. Kan handles inn fra innledende lang samtale eller kort posisjon for å skape en sterkere bullish posisjon. Kort syntetiske futures - Når du er bearish på markedet og usikker på volatiliteten. Du vil ikke bli påvirket av volatilitetsendring. Men hvis du har en mening om volatilitet og den oppfatningen viser seg å være riktig, kan en av de andre strategiene ha større gevinstpotensial og eller mindre risiko. Kan bli handlet inn fra innledende kort eller lang posisjon for å skape en sterkere bearish posisjon. Long Risk Reversal - Når du er bullish på markedet og usikker på volatilitet. Normalt er denne posisjonen startet som en oppfølging til en annen strategi. Dens risikovilje er det samme som en LONG FUTURES, bortsett fra at det er et flatt område med lite eller ingen gainloss. Kort risiko reversering - Når du er bearish på markedet og usikker på volatilitet. Normalt er denne posisjonen startet som en oppfølging til en annen strategi. Dens risikovilje er det samme som en KORT FUTURES bortsett fra at det er et flatt område med lite eller ingen gainloss. Kort samtale - Når du er bearish på markedet. Selg ut-av-penger (høyere streik) setter hvis du er mindre trygg på at markedet vil falle, selger du penger hvis du er sikker på at markedet vil stagnere eller falle. Kort Put - Hvis du er sikker på at markedet ikke går ned. Selg alternativene hvis du bare er litt overbevist, selg alternativer hvis du er veldig trygg på at markedet vil stagnere eller stige. Hvis du tviler på at markedet vil stagnere og være mer bullish, selger du penger for maksimalt overskudd. Bull Spread - Hvis du tror markedet vil gå opp, men med begrenset oppside. God posisjon hvis du vil være i markedet, men er mindre trygg på bullish forventninger. Du er i godt selskap. Dette er den mest populære bullish handel. Bear Spread - Hvis du tror markedet vil gå ned, men med begrenset ulemper. God posisjon hvis du vil være i markedet, men er mindre trygg på bearish forventninger. Den mest populære posisjonen blant bjørner fordi den kan inngås som en konservativ handel når det er usikkert om bearish holdning. Long Butterfly - En av de få posisjonene som kan inngås fordelaktig i en langsiktig opsjonsserie. Angi når, med en måned eller mer å gå, koster spredningen 10 prosent eller mindre av B A (20 prosent hvis streik eksisterer mellom A og B). Dette er en tommelfingerregel, teste teoretiske verdier. Kort sommerfugl - Når markedet er enten under A eller over C og posisjonen er overpriced med en måned eller så igjen. Eller når bare noen få uker er igjen, er markedet nær B, og du forventer et overhengende trekk i begge retninger. Long Iron Butterfly - Når markedet er enten under A eller over C og stillingen er underpriced med en måned eller så igjen. Eller når bare noen få uker er igjen, er markedet nær B, og du forventer en overhengende pause i begge retninger. Short Iron Butterfly - Skriv inn når Short Iron Butterflys nettokredit er 80 prosent eller mer av C A, og du forventer en lengre periode med relativ prisstabilitet der den underliggende vil være nær midtpunktet for C A-området nær utløpet. Dette er en tommelfingerregel, teste teoretiske verdier. Long Straddle - Hvis markedet er nær A, og du forventer at det skal begynne å bevege seg, men er ikke sikker på hvilken måte. Spesielt god posisjon hvis markedet har vært stille, så begynner å zigzag kraftig, signalering potensial utbrudd. Long Strangle - Hvis markedet er innenfor eller nær (A-B) rekkevidde og har vært stillestående. Hvis markedet eksploderer på begge måter, tjener du penger dersom markedet fortsetter å stagnere, du mister mindre enn med lang lengde. Også nyttig hvis implisitt volatilitet forventes å øke. Short Strangle - Hvis markedet er innenfor eller nær (A-B) rekkevidde og, selv om det er aktivt, er stille ned. Hvis markedet går i stagnasjon, tjener du penger dersom det fortsetter å være aktivt, har du litt mindre risiko enn med kort avstand. Ratio Call Spread - Vanligvis angitt når markedet er nær A, og brukeren forventer en svak til moderat økning i markedet, men ser potensial for salg. Et av de vanligste alternativene spres, gjøres sjelden mer enn 1: 3 (to overskytende shorts) på grunn av oppadgående risiko. Ratio Put Spread - Vanligvis angitt når markedet er nær B, og du regner med at markedet faller litt til moderat, men ser potensialet for kraftig økning. Et av de vanligste alternativene spres, gjøres sjelden mer enn 1: 3 (to overskytende shorts) på grunn av nedsatt risiko. Boks eller konvertering - Av og til vil et marked komme ut av linjen nok til å rettferdiggjøre en første oppføring i en av disse stillingene. Imidlertid er de mest vant til å låse hele eller deler av en portefølje ved å kjøpe eller selge for å lage de manglende beina på stillingen. Dette er alternativer til å lukke ut stillinger til muligens ugunstige priser. Primær sidefelt Forhøy din handel Hvorfor jeg velger DT Jeg bestemte meg for å komme tilbake til handel etter et år med papirhandel. Jeg sendte en e-post til Daniels at jeg var interessert i å snakke med en representant. Jeg ringte fra Brian Cullen x02026 Les mer - Mitchell S. Pataskala, Ohio Trustpilot Anmeldelser Siste tweets Lær å bruke CFRN indikatorer i et LIVE markedsmiljø i vår webinar hendelse Torsdag 9. mars klokken 13:00 CT. t. cokaGgQZcmat Tid siden 3 timer via buffer Try online commodity futures trading RISK GRATIS med en dt Pro praksis konto. Aktiver din demo her: t. coHCRLzBvyXv Tid siden 20 timer via buffer NY kjøpe forsterkningsnivåer for ESF fra MDASnapShot. Få full handel detaljer her: t. coCoXxaWZllH Tid siden 1 dag via buffer Copyright xA9 2017 xB7 Daniels Trading. Alle rettigheter reservert. Dette materialet blir formidlet som en oppfordring til å inngå en derivattransaksjon. Dette materialet er utarbeidet av en Daniels Trading-megler som gir forskningsmarkedskommentarer og handelsrekommendasjoner som en del av hans eller hennes henvendelse til regnskap og henvendelse til bransjer. Men ikke Daniels Trading vedlikeholder en forskningsavdeling som definert i CFTC regel 1.71. Daniels Trading, dets hovedpersoner, meglere og ansatte kan handle i derivater for egen regnskap eller for andre. På grunn av ulike faktorer (som risikotoleranse, marginkrav, handelsmål, kort sikt vs langsiktige strategier, teknisk versus grunnleggende markedsanalyse og andre faktorer), kan slik handel føre til initiering eller likvidasjon av stillinger som er forskjellige fra eller i motsetning til de meninger og anbefalinger som finnes deri. Tidligere resultater er ikke nødvendigvis en indikasjon på fremtidig ytelse. Risikoen for tap i trading futures kontrakter eller råvare alternativer kan være vesentlig, og derfor bør investorer forstå risikoen for å ta overlevert posisjoner og må ta ansvar for risikoen forbundet med slike investeringer og for deres resultater. Du bør nøye vurdere om slik handel passer for deg i lys av dine omstendigheter og økonomiske ressurser. Du bør lese nettsiden for risikoopplysning tilgjengelig på DanielsTrading nederst på hjemmesiden. Daniels Trading er ikke tilknyttet eller støtter det heller noe handelssystem, nyhetsbrev eller annen lignende tjeneste. Daniels Trading garanterer ikke eller verifiserer ytelseskrav fra slike systemer eller tjenester. LIFFE-alternativer 107297 - LIFFE Alternativer en veiledning til handel. Dette er slutten av forhåndsvisningen. Registrer deg for å få tilgang til resten av dokumentet. Uformatert tekstforhåndsvisning: LIFFE Alternativer en veiledning til handelsstrategier LIFFE 2002 Alle rettigheter og interesser i denne publikasjonen skal tilhøre LIFFE Administration og Management (quotLIFFEquot) og alle andre rettigheter, inkludert, men uten begrensning, patent, registrert design, opphavsrett, varemerke , servicemerket, knyttet til denne publikasjonen, skal også være med i LIFFE. LIFFE CONNECT er et varemerke for LIFFE Administration og Management. Ingen del av denne publikasjonen kan omfordeles eller reproduseres i noen form eller på noen måte eller brukes til å gjøre noe avledd arbeid (for eksempel oversettelse, transformasjon eller tilpasning) uten skriftlig tillatelse fra LIFFE. LIFFE forbeholder seg retten til å revidere denne publikasjonen og for å gjøre endringer i innhold fra tid til annen uten forpliktelse fra LIFFE til å varsle om slik revisjon eller endring. Selv om all rimelig forsiktighet er tatt for å sikre at informasjonen i denne publikasjonen er nøyaktig og ikke villedende på tidspunktet for offentliggjøring, er LIFFE ikke ansvarlig (unntatt i den grad det kreves av loven) for bruk av informasjonen som er indeholdt heri som oppstår under alle omstendigheter knyttet til faktisk handel eller på annen måte. Hverken LIFFE, dets tjenere eller agenter, er ansvarlig for eventuelle feil eller utelatelser i denne publikasjonen. Denne publikasjonen er kun til informasjon og utgjør ikke et tilbud, henvendelse eller anbefaling om å erverve eller avhende noen investering eller delta i annen transaksjon. All informasjon, beskrivelser, eksempler og beregninger i denne publikasjonen er kun veiledende og bør ikke behandles som endelige. LIFFE forbeholder seg retten til å endre noen av dens regler eller kontraktspesifikasjoner, og en slik hendelse kan påvirke gyldigheten av informasjonen i denne publikasjonen. De som ønsker å enten handle LIFFE futures og opsjons kontrakter eller å tilby og selge dem til andre, bør etablere regulatorisk stilling i den aktuelle jurisdiksjonen før det gjøres. FLEX er et registrert varemerke for Chicago Board Options Exchange Inc og har blitt lisensiert for bruk av LIFFE. quotFTSEquot og quotFootsiequot er varemerker for London Stock Exchange Limited og The Financial Times Limited og brukes av FTSE International Limited under lisens. quotStarsquot er et varemerke for FTSE International Limited. quotEurotopquot er et varemerke for Euronext NV eller dets datterselskaper (quotEuronextquot) og brukes av FTSE International Limited under lisens. FTSE Eurotop 100 Index er den proprietære interessen til Euronext og FTSE International Limited. All copyright i indeksverdiene og bestanddelene viser vesker i Euronext og FTSE International Limited i fellesskap. FTSE 100 Index, FTSE 250 Index, FTSE Eurotop 300 Index, FTSE Eurotop 300 (Ex UK) Indeks, FTSE Euro 100 Index og FTSE Stars Index er FTSE International Limited's proprietære interesse og har blitt lisensiert for bruk av LIFFE. Alle opphavsrettigheter i indeksverdiene og bestanddelene er vest i FTSE International Limited. Euronext og FTSE International Limited på ingen måte sponser, godkjenner eller ellers er involvert i utstedelsen og tilbudet av LIFFE-produkter og godtar ikke noe ansvar i forbindelse med handel med LIFFE-produkter. MSCI Euro Index og MSCI Pan-Euro Index (quotIndicesquot) er servicemerker av Morgan Stanley Capital International Inc. (quotMSCIquot). Servicemerkene er lisensiert av MSCI for bruk av LIFFE. Ingen Exchange-kontrakt på MSCI Euro Index og MSCI Pan-Euro Index er sponset, garantert eller godkjent av MSCI. MSCI gir ingen uttalelser om hvorvidt det er hensiktsmessig å bruke slike valutakontrakter. MSCI gir ingen representasjon om nøyaktigheten eller fullstendigheten til indeksene eller deler av deres bestanddeler. MSCI gir ingen garanti med hensyn til formål eller hvilken bruk som indeksene eller utvekslingskontrakterne kan pålegges, eller om gyldigheten eller på annen måte av informasjon utgitt av børsen i forbindelse med et hvilket som helst aspekt av kontrakter inngått i vilkårene for slike en Exchange-kontrakt. Uten å begrense noen av de foregående, under ingen omstendigheter, skal MSCI ha noe ansvar for direkte, indirekte, spesielle eller følgeskader, inkludert eventuell tap av fortjeneste. Swapnote er et registrert varemerke for ICAP plc og har blitt lisensiert for bruk av LIFFE. Swapnotts kontraktsdesign og algoritme er beskyttet av patent (US 6,304,858 B1), eid av Adams, Viner og Mosler Ltd. (AVM) og er utelukkende lisensiert til LIFFE over hele verden. Innhold Side Innledning LIFFE opsjonskontrakter 3 Anerkendte strategier 5 Grunnleggende valgteori 7 Notater om strategisk konstruksjon 10 LIFFE Alternativer Strategier 1. Langt anrop 11 2. Kort samtale 12 3. Lang Put 13 4. Kort Put 14 5. Lang Call Spread 15 6. Kort sutt spredt 16 7. Kortt spredt spredt 17 8 Langt spredt spredt 18 9. Langt kombinert 19 10. Kortt kombinert 20 11. Langstrekning 21 12. Kort straddle 22 13. Lang strekning 23 14. Kort stryp 24 15. Lang tarm 25 16. Kort tarm 26 17. Lang smør 27 18. Kort smør 28 19. Lang kondor 29 20. Kort kondor 30 21. Lang jernbørster 31 22. Kort jernbørster 32 23. Lang jernkondorator 33 1 Page 24. Kort jernkondor 34 25. Langkallestripe 35 26. Kortkallestripe 36 27. Langklikkestripe 37 28. Kortklikkstripe 38 29. Langkalibrert spredt 39 30. Lang diagonalkalenderutbredelse 40 31. Langkalibreringskalender Spredt 41 32. Lang diagonalstråle Kalenderen Spredt 42 33. Langjellrulle 43 34. Langraddring (Kalenderen) Strip 45 36. Langt to etter ett forhold Kallspredt 46 37. Kort to etter en forholdsoppringing 47 38. Lang to etter ett forhold Spredt spredt 48 39. Kort to etter ett forhold Spredt spredt 49 40. Langtallestige 50 41. Korttallestige 51 42. Langtallestige 52 43. Short Put Ladder 53 44. Syntetisk Lang Underliggende 54 45. Syntetisk Kort Underliggende 55 46. Lang anropsspredning versus Put 56 47. Kortsamtalespredning versus Put 57 48. Lang Put Spread versus Call 58 49. Kort Put Spread versus Call 59 50. Lang rekkevidde versus Ring 60 51. Kort rekkevidde versus Ring 61 52. Lang rekkevidde versus Put 62 53. Kort rekkevidde versus Put 63 54. Lang volatilitetshandel 64 55. Kort volatilitetshandel 65 56. Konverteringsreversjon 66 57. Delta Neutral Strategies 2 44 35 . Long Box 67 Innledning Hendelser de siste årene har fremhevet volatiliteten og usikkerheten som er en naturlig del av dagens nasjonale markeder. LIFFEs omfattende utvalg av opsjonsstrategier gir ikke bare et bredt spekter av synspunkter, og gir brukerne mulighet til å få innflytelse, men tilbyr fordelene med utførelse innenfor en enkelt transaksjon, slik at konkurransedyktige sprekker og reduserte valutakursavgifter kan oppnås. Med mindre annet er oppgitt, gjelder strategiene i denne veiledningen for alle LIFFE opsjoner kontrakter på kortsiktig rente, statsobligasjon og swaps futures, råvare futures, aksjeindekser og individuelle aksjer. LIFFE opsjoner - en veiledning til handelsstrategier viser når og hvordan LIFFEs anerkjente opsjonshandelsstrategier kan brukes. Hver strategi er illustrert med prot og tap proles, pluss detaljer om forfallskarakteristika og markedsfølsomhet. LIFFE Options Contracts Alternativer er tilgjengelige på følgende LIFFE kontrakter: Alternativer på kortsiktige renteterminaler Tre måneders Sterling Tre Måned Euro (EURIBOR) Tre Måned Euro (LIBOR) Tre Måneder Euroswiss Alternativer på statsobligasjons futures Tysk statsobligasjon (Bund) Lang Gilt Alternativer på swapnote futures Toårs Euro Swapnotte Femårs Euro Swapnotte Tiår Euro Swapnotte Alternativer på indekser FTSE 100 (amerikansk stil) FTSE 100 (europeisk stil) FTSE 100 FLEX FTSE Eurotop 100 MSCI Euro MSCI Pan Euro Euro Egenkapital Alternativer Alternativer på Ikke-Finansielle Framtider Kakao Robusta Kaffe Hvit Sukker Hvete 3 Seriealternativer LIFFE serielle opsjoner er kort daterte månedlige utløpsalternativer. Disse har benet av lavere premier, kan brukes som et presisjonsverktøy for sikring av gamma-, vega - og theta-eksponeringer og gir i tillegg muligheter for spredning av handel mot lengre daterte opsjoner. Utøvelse av et alternativ for seriell utløpsmåned vil resultere i tildeling av en futuresposisjon i den nærliggende kvartalsvise leveringsmåneden (for eksempel utøvelse av et juli-serienummer vil resultere i tildeling av en september futuresposisjon). Seriealternativer er tilgjengelige på følgende LIFFE-kontrakter: Tysk-statsobligasjon (Bund) fremtiden Long Gilt fremtid Tre måneder Euribor fremtid To-års Euro-swapnotte Femårs Euro Swapnotte Tiår Euro Swapnotte Mid-Curve Options LIFFE Mid-Curve-opsjoner er korte - date opsjoner med en lengre datert (Rødmåned) futures kontrakt som underliggende eiendel. Ved å gi lengre datert eksponering enn alternativer for LIFFE vanilje, viser Mid-Curve-alternativer høyere implisitt volatilitet, større tidsforfall og høyere vega enn deres tradisjonelle, langdate alternativmodeller. I tillegg krever Mid-Curve-alternativene mindre premie enn lengre daterte alternativer og viser vanligvis høyere gamma og theta. LIFFE Mid-Curve-opsjoner er tilgjengelige med utløpssyklusene i mars, juni, september og desember med to serielle måneder, slik at fire utløpsmåneder er tilgjengelige for handel, med de nærmeste tre utløpsmånedene i påfølgende kalendermåneder. One Year Mid Curve Options er tilgjengelig på følgende LIFFE futures kontrakter: Tre Måned Euro (EURIBOR) Tre Måned Sterling 4 Anerkendte strategier LIFFEs anerkjente strategier kvalifiserer for reduksjon av transaksjonsavgift. Alle komponentene i strategien må bestilles til en enkelt konto. LIFFE tillater ikke sammenslåing av virksomheten fra forskjellige kunder for å gjøre opp en side av handelen. Alternativ Kun Strategier Følgende strategier består kun av opsjonskomponenter: LIFFE TRS CONNECT Strategistrategiskodekode Call (Put) Spread 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 Spread FF Straddle Kalender Spread NN Diagonal Straddle Kalender Spread PP Gelé Roll AA Straddle Strip MM Box XX To etter ett forhold Ring (Put) Spread HH Ladder LL Syntetisk Underliggende rr Ring Spread vs Put x 1 Sett Spread vs Call y 3 Straddle vs Call (Put) z 7 5 Delta Neutrale Strategier I tillegg til ovennevnte strategier, lar LIFFE opsjoner og futures kombineres til en enkelt strategi, handlet gjennom LIFFE CONNECT. For opsjoner er opsjonene kombinert med en handel i underliggende aksje, eller alternativet kan alternativet kombineres med en handel i Universal Stock Futures kontrakten der dette er tilgjengelig. Tilgjengelige delta nøytrale strategier er: LIFFE Volatilitet Handel Konvertering Reversal Call (Put) Spread vs Underliggende Straddle vs Underlying Ladder vs Underliggende Combo vs Underliggende Kalender Spread vs Underlying To for one ratio spread mot Underlying Call Spread vs Put vs Underlying Put Spread vs Call vs Underlying 6 TRS CONNECT strategistrategi kode VR dsajehcp kode VRVVVVVVVV Grunnleggende opsjonsteori I, til og uten penger Det er et opsjonsalternativ når den underliggende prisen er høyere enn opsjonsutnyttelseskursen, og er utenfor-av - pengene når den underliggende prisen er lavere enn opsjonsutnyttelseskursen. Et opsjonsalternativ er penger når den underliggende prisen er lavere enn opsjonsutnyttelseskursen, og er utenom penger når den underliggende prisen er høyere enn opsjonsutnyttelseskursen. Et alternativ er at-pengene når den underliggende prisen er lik opsjonsutnyttelseskursen. I praksis er opsjonen med utøvelseskursen nærmest den nåværende underliggende prisen kalt alternativet for pengene. Intrinsisk og tidsverdi Alternativprisen eller premien kan betraktes som summen av to spesifikke elementer: egenverdi og tidsverdi. Innledende verdi Eget verdi av et opsjon er det beløpet en opsjonshaver kan innse ved å utnytte opsjonen umiddelbart. Intrinsic verdi er alltid positiv eller null. Et alternativ for pengene uten null har ingen nullverdi. Intrinsic verdi av innkjøpsalternativet underliggende produktpris - strike-pris Intrinsisk verdi av pengepremie-opsjonspris - underliggende produktpris Tidsverdi Tidsverdien av et alternativ er verdien over egenverdien som den markedsplasser på opsjonen. Det kan betraktes som verdien av den fortsatte eksponeringen til bevegelsen i den underliggende produktprisen som opsjonen gir. Prisen som markedet legger på denne tidsverdien avhenger av en rekke faktorer: tid til utløp, volatilitet av underliggende produktpris, risikofri rente og forventet utbytte. Tid til utløp Tid har verdi, siden jo lenger alternativet må gå til utløpet, desto større mulighet er det for at den underliggende prisen skal flytte til et nivå slik at alternativet blir in-themoney. Generelt, jo lengre tid å utløpe, desto høyere blir alternativverdien. Som utløpsmetoder har verdien av et alternativ tendens til null, og hastigheten på tidsforfall akselererer. Tidsverdien forfallstidskurve tid verdi måneder til utløpsdato 7 Volatilitet Volatiliteten til et opsjon er et mål for spredningen av prisbevegelsene til det underliggende instrumentet. Jo mer volatile det underliggende instrumentet er, desto større blir tidverdien av alternativet. Dette vil bety større usikkerhet for opsjons selgeren som vil belaste en høy premie for å kompensere. Alternativprisene øker ettersom volatiliteten stiger og reduseres ettersom volatiliteten faller. Effekt av volatilitet økning i økningen på langvarig fortjeneste Volatilitetsøkning Volatilitet redusere tap Underliggende pris Utløp, null volatilitet Alternativfølsomhet Gjennom denne brosjyren refererer strategimønstrene til markedsfølsomhetene for de involverte alternativene. Disse følsomhetene blir ofte referert til som grekerne, og disse er benyttet nedenfor. Delta: måler endringen i opsjonsprisen for en gitt endring i prisen på underliggende og dermed gjør det mulig å fastslå eksponering for underliggende. Delta er mellom 0 og 1 for samtaler og mellom 0 og -1 for puts (dermed et anropsalternativ med et delta på 0,5 vil øke i pris med 1 kryss for hver 2 kryssøkning i underliggende). Gamma: måler endringen i delta for en gitt endring i underliggende. (for eksempel hvis et anropsalternativ har et delta på 0,5 og et gamma på 0,05, indikerer dette at det nye deltaet vil være 0,55 dersom den underliggende prisen beveger seg opp med ett fullpunkt og 0,45 hvis den underliggende prisen beveger seg ned med ett fullpunkt). Theta: måler effekten av tidsforfall på et alternativ. Etter hvert som tiden går, vil alternativene miste tidverdien og theta indikerer omfanget av dette forfallet. Både innkjøps - og salgsopsjoner spilder eiendeler og har derfor en negativ theta. Vær oppmerksom på at forfallet av alternativer er ikke-lineært ved at forfallshastigheten vil akselerere ettersom opsjonsalternativene utløper. Som tabellen nedenfor illustrerer, vil theta nå sin høyeste verdi umiddelbart før utløpet. Vega: måler effekten som en endring i underforstått volatilitet har på en opsjonspris. Både samtaler og sett vil ha en tendens til å øke i verdi ettersom volatiliteten øker, da dette øker sannsynligheten for at alternativet vil bevege seg i penger. Både samtaler og putter vil således ha en positiv vega. 8 I denne brosjyren vises markedsfølsomhetene for hver strategi i form av en tabell basert på stillingen på 30 dager til utløpet. Dette viser de omtrentlige følsomhetene for når det underliggende er penger, så vel som når det underliggende stiger og faller. Tabellene viser følsomhetene til en stilling som angitt nedenfor: 0 ---- svært positiv positiv litt positiv nøytral litt negativ negativ høy negativ Under følsomhetstabellen for hver opsjonsstrategi er det korte forklaringer på bevegelser i opsjonsfølsomhetene, inkludert korte beskrivelser av Eventuell avvik fra følsomhetstabellen som kan forekomme (for eksempel når posisjonen er nærmere utløp). Merk at sensitivitetstabellene ikke er ment å være en nøyaktig veiledning for handel. De er utformet for å gi en indikasjon på hvordan bevegelser i underliggende vil forandre den generelle og relative markedsfølsomheten til en stilling. Oppsummering av opsjoner og futures Greske verdier Individuelle opsjonsstillinger, f. eks. longshort call options, har sine egne greske verdier. Tabellen nedenfor oppsummerer disse verdiene: Verdiendringer Delta Posisjon under streikanrop ved Gamma over streikstrekk under Theta over streikstreikstrekk under streikavslag Vega over under streikstreikstreik - - - ved overstreik - ring - - - - - - - - - - - satt --- - - - - - - satt - --- - - - - fremtidig etter na na na na na na - fremtidig - - --- na na na na na na na --- 9 Putcall paritet Av særlig betydning med hensyn til arbitrage handler er begrepet putcall paritet. Dette er forholdet som eksisterer mellom samtaler og setter. Det står at verdien av en samtale (put) kan utledes av verdien av en put (call) med samme utøvelseskurs, forfallsdato og underliggende pris. Derfor for LIFFE opsjoner på futures: CPF-X hvor: C samtale pris P sette pris F futures pris X utøvelseskurs NB Dette antar at det ikke er noen bærekostnader for opsjoner (som er tilfellet for LIFFEs nåværende utvalg av opsjoner på futures hvor premie er ikke betalt opp foran). En putcall-paritetspris for premium-upfront-alternativer (for eksempel LIFFEs FTSE 100 Index Options) kan bli funnet ved å endre denne formelen litt. Arbitrage handler, som de som er vist i denne veiledningen, er basert på forholdet mellom bestemte posisjoner ved hjelp av opsjoner og futures. Referert til som syntetiske posisjoner, er de avledet fra set-call paritet, og ved å bruke dette forholdet er det mulig å utføre arbitrage mellom syntetiske posisjoner og deres direkte ekvivalent. Notater om strategisk konstruksjon Protloss proles: Protold proles er illustrert for hver strategi der det er mulig. Den vertikale akse viser prot over den horisontale jevnlinjen og tapet under breakeven-linjen. Den horisontale aksen representerer prisen på det underliggende instrumentet (økende fra venstre til høyre). Alle mulige prot - og tap-utfall ved utløpet er vist i faste linjer, og effekten av tidsforfall er illustrert med proler på tre måneder til utløp (lett strekte linjer) og i en måned til utløp (tunge strekklinjer). Det skal bemerkes at alle prospekter og forklaringer ikke inkluderer provisjonskostnader, kostnader til marginkrav og andre eksekveringsutgifter. Betydning av penger: I form av disse eksemplene anses pengeplanen å være hvor den underliggende prisen er lik utøvelseskursen på opsjonskontrakten. For symmetriske strategier som består av to streik, blir pengepengene tatt til å være midtpunktet mellom de to slagprisene. Effekt av tid: Alternativstrategien analyseres fra et tidspunkt 30 dager etter utløpet. Vær oppmerksom på at verdien av visse grekere kan endres ettersom posisjonen tilnærminger utløper. 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. Klikk for å redigere dokumentdetaljer