Annuities and Other Retirement Products: Designing the Payout Phase (Directions in Development)_7

Tham khảo tài liệu 'annuities and other retirement products: designing the payout phase (directions in development)_7', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả
Nội dung trích xuất từ tài liệu:
Annuities and Other Retirement Products: Designing the Payout Phase (Directions in Development)_7 B utterflies and condors: combining call spreads and put spreads 13 1 45  Table 13.5 Marks and Spencer long April 320–330–340–350 put condor 310.00 320.00 322.25 330.00 340.00 347.75 350.00 360.00 M&S –2.25 --------------------------------------------------------------------- Spread debit 10.00 10.00 10.00 10 .00 10.00 2.25 0.00 0.00 Value of long 350–340 put spread at expiry –10.00 –10.00 –7.75 0.00 0.00 0.00 0.00 0.00 Value of short 330–320 put spread at expiration –2.25 –2.25 0.00 7.75 7.75 0.00 –2.25 –2.25 Profit/loss 10 8 6 4 2 0 320 330 340 350 360 310 –2 –4 Expiration profit/loss relating to Table 13.5 Figure 13.5 *Long at-the-money put condor For stationary markets Put condors, like call condors, can be placed at many different strikes, depending on your near-term outlook for the underlying. If your out- look calls for a stationary market, but you wish to leave room for error on the downside, you can substitute the long at- Put condors, can be the-money put condor for the at-the-money put placed at many different butterfly. You might, for example, buy the above strikes, depending on April 360–350–340–330 put condor for a debit of your near-term outlook 3.5 The downside profit potential of this spread is for the underlying O ptions spreads 1 46 P art 2  the same as the upside profit potential of the long April 340–350–360–370 call condor. The profit/loss at expiration is summarised as follows: Debit from long April 360 put: –16.25 Debit from long April 330 put: –3.75 Credit from short April 350 put: 10.25 Credit from short April 340 put: 6.25 ––––– Total debit: –3.50 Maximum profit: difference between highest two strikes minus spread debit: (360 – 350) – 3.5 = 6.5 Range of maximum profit: 350 – 340 Upper break-even level: highest strike minus spread debit: 360 – 3.5 = 356.5 Lower break-even level: lowest strike plus spread debit: 330 + 3.5 = 333.5 Profit range: 356.5 – 333.5 = 23 Maximum loss: cost of spread: 3.5 The risk/return ratio is again favourable at 3.5/6.5 = 0.54 for 1, or 1/1.85. By now you should be an expert at tabulating and graphing the expiration profit/loss levels of condors and butterflies. * Short at-the-money put condor For volatile markets Like the butterfly, the condor can be sold in order to profit from a vola- tile or trending market. Although this is more of a market-maker’s trade, you might consider trading it during volatile mar- Like the butterfly, the kets. For example, you could sell the above April condor can be sold in 360–350–340–330 put condor at 3.5. If Marks and order to profit Spencer closes above 360 or below 330 at expira- from a volatile or tion, you earn the credit from the spread. In this trending market case you are taking a slightly bullish position. The profit/loss figures are exactly the opposite of the above long put condor. B utterflies and condors: combining call spreads and put spreads 13 1 47  * Short at-the-money call condor for volatile markets If instead your outlook is for volatile conditions and you are slightly bear- ish, you might sell the April 340–350–360–370 call condor at 2.75. (Don’t be surprised if you earn your profit on the upside.) If at expiration Marks and Spencer close ...