# Questions tagged [option-strategies]

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### Portfolio with zero or negative initial cost

Let's say I have formulated an integer linear programming (ILP) problem with the objective function $$F(X)=V(T,X)-C(t,X),$$ where $V(T,X)$ is the payoff of portfolio, and $C(t,X)$ is the initial cost ...
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### What does it mean for an option strategy to be leveraged

Probably a newbie question, but what do traders mean when they say that an option strategy is leveraged ? And when can we say that it is the case ?
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### Relations between Call and Put

I am trying to solve a question in finance but I am pretty much stuck and would need your help :) Suppose you know the following information about a market: Future is at 66 70 strike straddle is ...
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### Replicating option strategies

I was curious if there was any references to replicating option strategies i.e. bull spread, bear spread, butterfly, strangle, straddle, etc...? Also what is the insight into replicating of these ...
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### Shorting an option every day vs shorting only at maturity

Suppose we have 2 strategies : strategy A : every $N$ days, we short a call option with a time-to-maturity of $N$ days; strategy B : every day, we short $\frac{1}{N}$ of a call option with a time-to-...
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### Effect of different maturity options in delta-gamma-hedging

I read about hedging with options and think i got it. However there is a case am not sure how to handle. Is there any exception in the delta-gamma-hedging-(calculaton-)technique? - say: solve an set ...
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### Calendar spread: What are the worst cases?

I am looking to solely make use of the theta decay and trying to overcome the effects of delta and Vega. ​​If, I sell ABC Feb OTM (strike price X) with 3 x 10 = Rs. 30 credit and buy ABC Mar OTM (...
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### How to use Black-Scholes' formula for a butterfly option?

I'm wondering if I can apply Black-Scholes formula to value a butterfly option, i.e: $$B(T)=V_\text{call}(S(T)-K,0)+V_\text{call}(S(T)-K',0)-2V_\text{call}(S(T)-K'',0)$$ with $K<K''<K'$, just ...
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### How to automatically get all options data for a particular stock into microsoft excel?

I'm looking for a way to get the entire options chain (All options expiries) for a particular stock in excel without manually copy pasting anything. It does not have to be real time and I will only be ...
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### How to trade leveraged ETFs

Leveraged ETFs (LETFs) are known to lose value over time due to the "volatility decay" effect. What're the most common strategies for trading LETFs to take advantage of this volatility effect? Also, ...
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### Analysis of exercising a call option early

Most options traders sell their call options early instead of exercising them, as you would make a bigger profit this way due to being able to salvage some remaining extrinsic value. For example: ...
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### Delta Hedging for 2 Factor Models

If the value of an option at Maturity is what is the off-setting position you take for X and Y, if you are i)Long Call of the option ii)Short Call of the option iii)Long Put of the option iv)Short ...
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### delta hedging strategy for OTM option

Wondering how you would think about the following thought experiment - suppose you sell an OTM call option and plan to implement a delta hedging strategy whereby if the price of the stock were to ...
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### Is it possible to detect a belief that a security will peak and then decline by analyzing American options pricing?

Please forgive me if this is a dumb question. I know only the basics of options and their valuation, and this is a question I've wondered for some time without being able to find a satisfactory answer ...
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### Implied volatility of a complex options position

Assume I have a "complex" options position like a straddle, strangle, or iron condor. In other words, several options traded together as a single position against one underlying asset (not a basket ...
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### Computation of option vega under CEV

It is easy to define the option vega $\nu=\frac{\partial C}{\partial \sigma}$ under Black Scholes model since volatility is a single quantity. However, under CEV or local volaility model, it is ...
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### Discrete Hedging of Options

Assume that a stock $S_t$ follows simple geometric Brownian motion. Let's say we sold option whose payoff is $f(S_T)$. Now, we are only allowed to trade 2 times in the interval [0,T]. What kind of ...
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### analytic formula for the value of an American put option

It seems to be a foolish question but I can't take my mind off from , Is it true that there is no analytic formula for the value of an American put option on a non-dividend-paying stock (or a divident ...
577 views

### Why/How does a hedged portfolio make profits?

This is probably a very easy question but I am new to the field and couldn't find an answer. Assuming that I am building a hedged portfolio with a long option and going short delta on the underlying. ...
1k views

### Option arbitrage with dividends?

If a stock pays a discrete dividend, the stock price falls by the amount of the dividend. There is no arbitrage opportunity from this predictable jump, because the investors receive the same amount of ...
248 views

### Short volatility strategy using strangles

For a short volatility strategy using option strangles, is it better to target a fixed premium to earn? Or a fixed vega? Objective is to maximise the return/risk (sharpe) of the strategy. Any help ...
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### How to measure the performance of an systematic option strategy

I have a strategy based only on option instruments and I am trying to measure its performance to optimize some parameters. But how does one measure the performance of such strategies? For Sharpe ...
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### Are “American” option strategies traded OTC?

Is there such a thing as an American butterfly spread? For a European butterfly spread simply buying 1 put with strike price X+a, 1 put with strike price X-a and shorting 2 calls with strike price X, ...
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### Exercise on American call option and dividends

Consider an americal Call option on an underlying paying dividends. Then it is often argued that it is only optimal to exercise right before the dividend is paid out, otherwise one will not exercise. ...
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I am in the process of analyzing historical options data, and I keep finding options that mysteriously disappear before they are due to expire. For example: For the QQQ $69 Put, http://www.eoddata.... 2answers 332 views ### Why long power and short gas for Merchant power plant Merchant power plant is one that can be turned on whenever you want. Suppose it is generating electricity from natural gas and we have a spark-spread option. Why is that the person who owns plant is ... 1answer 537 views ### Given future price probability distribution, what is a strategy that maximizes return? Say I know the price probability distribution, e.g., lognormal(p,s), of a stock X at a future time ... 2answers 1k views ### Algorithmical replication of a profit and loss function using different options I often see questions like "Given this payoff graph (example below), construct a portfolio that replicates it." I want to know if there is an efficient method/algorithm to find the individual pieces ... 0answers 105 views ### Binary options and European option is similar? European options and binary (digital) options is similar? How apply the Black & Scholes formula on binary option? 1answer 595 views ### Risk-free investment strategy for european call and put option I have some trouble solving the following question: We have an european call and put option (with the same maturity date$T$en strike$E=10$). The stock price now is$S=11$and we use a continuous ... 2answers 819 views ### Calculating Greeks in Covered Calls? Just want to confirm whether Delta, Gamma, Theta, Vega will be calculated in the following way? Since we own 100 shares of stock while selling a call we need to subtract greek value from one? right? ... 2answers 256 views ### stock option strategies long vs short What makes an option strategy long or short? I got the impression that if it is a net debit (you pay to open the strategy) it is classified 'long' (strangle, straddle) Then I learned about the call ... 2answers 490 views ### What is most reasonable approach to determine side of a multi-leg options order? Say, 4-legged multi-leg options order with below leg ... 1answer 10k views ### Seagull option strategy - clear example It looks like the subject of seagull option strategy is not as clearly explained as for other strategies (butterly, bull,bear spread). Thus, can someone provide a clear example of what you buy and ... 2answers 192 views ### Symmetry of option-implied probability density I was wondering whether the option implied probability density of the log returns:$x = \ln\left(\frac{S}{S_0}\right)$with S the value of a certain stock, is always symmetric ? I was asking myself ... 1answer 236 views ### Floor and Cap problem So I have a problem from Marcel Finan's "A Basic Course in the Theory of Interest and Derivative Markets." We are going over floors and caps, covered puts and covered calls. Consider the following ... 1answer 181 views ### Hedging differences between equity and index options? Suppose we hedge an index option using futures on that index. How would the hedging strategy be different if the underlying could be traded directly (from a risk point of view)? 1answer 10k views ### Call option arbitrage opportunity I am having trouble wrapping my head around some text provided to us by our lecturer (unfortunately he is currently unavailable). If we let$c$be the price of a European call option,$S_0$the ... 0answers 466 views ### Call options portfolio: what would the underlyings' moments to be maximized? Let you have only three underlyings, like SPY, TLT and GLD, and you want to buy$n_{1}$Call options on SPY,$n_{2}$Call options on TLT and$n_{3}\$ Call options on GLD... with a limited budget, that ...
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If a linear sum of options is constructed such that the premium payout is zero, then does it mean that resultant greeks of the cumulated options positions will be nearly zero. For simplicity, lets ...
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### What is the Benefit of holding a short option?

i am new to corporate finance and ask myself why a investor is interested in being short on a Option? The only he can win is a premium but he can loose much more. I understand with being a short I can ...