Archive for the ‘Articles’ Category
Risk Graphs: OTM Call Diagonal
September 12th, 2009 | 
Author: 
-This trade is set up as a credit spread with the short call in the near month closer to the money and a long call the next month out usually one to two strikes above the short call. The trade is a diagonal because it is a two legged position with the options at different strikes and different expiration months. The trade will profit anywhere below the breakeven of the near month short call plus the credit from the spread and possible long call appreciation. Volatility crush on the back month call will reduce the breakeven point above the short call strike price so it is best to pay attention to the implied volatility of the long call when setting up the trade. The fact that the back month call is further OTM should mitigate some of that risk because the Vega is less. Review the risk graph and you should gain further understanding of the risk and reward of the strategy. Best, Robin
Posted in 
Risk Graphs: Synthetic Short Stock
-This is the component risk graph of the synthetic short stock position.
-This is the composite risk graph of the synthetic short stock position which is comprised of a short call and a long put at the same strike and expiration month.
Risk Graphs: Long Call Synthetic Straddle
-
Much like the Long Put Synthetic Straddle, this strategy entails selling short stock and buying ratio calls to bring the position to delta neutral. The risk is limited and the cost is actually less than a standard application of the straddle. It is best to enter the position at a point of low volatility with an expectation of increasing volatility.
Risk Graphs: Long Put Synthetic Straddle
This position is a non-directional play consisting of long stock and ratio puts. Enough puts should be purchased to bring the position to delta neutral. This is a volatility strategy and should ideally be placed in a period of low volatility with an anticipation of increased volatility. The position is a limited risk, unlimited reward play. It is more expensive than a traditional straddle, however, because stock is used to optimize the bullish side of the strategy, it reduces the negative effect of time decay and volatility that would normally be present if we used long calls.
Risk Graphs: Short Put Butterfly
-The short put butterfly is a limited risk, limited reward strategy that is best implemented when volatility is relatively low in anticipation of increased volatility after entry. The short puts reduces the cost of the trade but also decreases the reward. The long puts are placed ATM and the short puts are equidistant from the long put strike with one short put above and the other below the long put strike price.
Risk Graphs: Short Call Butterfly
The short call butterfly is a limited risk, limited reward strategy that is best implemented when volatility is relatively low in anticipation of increased volatility after entry. The short calls reduces the cost of the trade but also decreases the reward. The long calls are placed ATM and the short calls are equidistant from the long call strike with one short call above and the other below the long call strike.
Risk Graphs: Synthetic Long Stock
The component legs of the position 1) Long Call at strike 60 and 2) Short Put at 60. Both of the options in the same expiration month.
The combined position is the synthetic equivelent to Long Stock.
RSS feed
