Questions tagged [option-strategies]

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204 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 ...
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22 views

Option Based Portfolio Insurance OPBI Simulation Excel

I want to simulate an example of OBPI in Excel. I can't find any example online with random figures that show how to simulate it. I tried to understand the appendix of Perold (1995): Dynamic ...
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77 views

How to price a put option on a multi-asset fund? Confused by risk-neutral pricing implicaton on real world

The fund has super track record with stable vol. The chance for this Put to pay out is very low in real world, but a B/S risk-neutral pricing would give a very high cost. I am struggling with the ...
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37 views

Selecting strike prices for put-writing strategy based on Z-scores

I'm trying to replicate the put-writing strategy of Jurek and Stafford from 2015 (The Cost of Capital for Alternative Investments, Jrl. Fin. SSRN). Their strategy writes index put options on the SP500,...
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37 views

Wheres is this method/notation of option portfolio payoff design from?

The "desired position" in the image is a set of slopes $(0,1,-1,0)$, and a set of strike prices between these slopes $\mathbf{K}=(98,100,102)$. The payoff is then designed by finding the positions $...
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0answers
92 views

Correct beta weighted delta options formula?

Is this the correct formula for beta weighted delta: http://www.nishatrades.com/blog/beta-weighted-delta I've seen this What is the formula for beta weighted delta and gamma? but they seem to be ...
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135 views

When to expect profitability of a call options buying strategy

When could we expect consistent profitability of a call options buying strategy given specific statistical assumptions about X% chance of a stock price moving up by Y% within 1-5 days (or Z number of ...
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0answers
249 views

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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117 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?
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475 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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2answers
75 views

Why are these deep in-the-money FLEX options seemingly bought at a discount?

98% of the initial reference value is .98 x 267.88 dollars, which equals 262.52 dollars. However, the market value of each call contract they purchase is 247.42 dollars. How are they purchasing these ...
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1answer
52 views

What are an option's “tested” and “untested” sides? [closed]

What does 2 below mean? Adjust what once? What do tested and untested side mean? teamspritemini. 2 points 3 years ago My preference is as follows: If Naked, 3X premium as stop ...
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1answer
63 views

Is it possible to use options to increase the yield of a dividend paying stock?

I was wondering if it is possible to use call options (selling call options) to increase the yield of a dividend-paying stock (that I already own) by 1-2 percent per year? What are the cons of this ...
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2answers
391 views

Delta neutral strategy using a combination of put and call options

I am learning about quantitative finance and currently learning about delta neutral strategies. The examples given are most of the times of the form: if you buy call options, you can hedge your ...
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1answer
36 views

Calculate borrow/loan or repo rate

I was given this question on interview and couldn't find an answer in time (it is a software developer job in a place that deals with options). Can someone explain how to do this or point me to a good ...
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1answer
54 views

What does buying back a “short strike” for .05 mean?

What does the red phrase below mean? doougle. 7 points 3 years ago. This is one of the "not as easy as it sounds" things about options. You always hear things like "Make money if the ...
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1answer
117 views

Active vol strategy within a portfolio

Suppose I'd like to have 10 % of my portfolio allocated to "long volatility" by rolling straddles . Obviously going all in on one trade implies significant risk of losing all the money. Does anyone ...
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1answer
83 views

How to normalise options? Normalise strike price, premium, tenors

I would like to normalise options, to being able to compare it. Make price of underlying symbol = 1, have same tenors, and same step for the strike price. 1) Use 1 as stock_price and scale ...
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1answer
39 views

Are the price of vanilla bull/bear spread constructed by calls and puts same?

We know that both bull and bear can be constructed by either two calls or two puts. Say if given two strikes, will price of bull call equal to price of bull put?
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1answer
59 views

Really simple question regarding options. (Amateur level) [closed]

I'm just starting to educate myself on trading and financial instruments and I have what to me seems like a somewhat stupid question but I'd like to pose it nontheless. If I have an option to sell ...
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1answer
91 views

Double Call Option

A double call option allows the holder to either exercise at time $T_{1}$ or time $T_{2}$, where $T_{2}$>$T_{1}$. With corresponding strike prices $K_{1}$ and $K_{2}$, it can be shown that it is never ...
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1answer
37 views

Calculate 6 month- return for an investment [closed]

Assume that the price of DF stock went from a price of $104 on March 2 to 146 on April 1. With a current stock price of 146, Invest all of your amount 14,600 in the DF stock (buy 100 shares) ...
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1answer
71 views

Question about the writing a call option on an existing portfolio of stocks [closed]

My question is Please discuss about the following statement “ the advantages and disadvantages of writing a call option on an existing portfolio of stocks” Note that I read an article nearly ...
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1answer
72 views

Papers on synthetic options

I'm looking for some scientific papers to get a better grasp of synthetic options mainly the valuation, eventual time decay etc.. I've looked in my university library and only but I only found obscure ...
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1answer
82 views

Is it possible to calculate the call-put parity for an option's portfolio?

Let's say I have designed an option's portfolio. The portfolio includes long as well as short positions in European-style put and call contracts based on the same underlying asset with different ...
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1answer
93 views

How to calculate ROI on a net credit option transaction?

If I have an option that has a net credit and results in a positive expected value (based on my own estimates of volatility), how do I calculate an ROI in order to compare with a net debit credit ...
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1answer
145 views

Time Value of Option

I am working on time value of option, and especially with dividend, and I have the following questions. First if the consider the Black Scholes models with no dividends and free interest rate $r = 0$ ...
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1answer
210 views

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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1answer
176 views

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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2answers
2k views

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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1answer
251 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 ...
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0answers
25 views

Reference request for equity index gamma modeling

I read this article a while ago https://www.zerohedge.com/markets/all-you-ever-wanted-know-about-gamma-op-ex-and-option-driven-equity-flows and i've found a lot of success trading options using these ...
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22 views

How to visualise Option Strategies P&L with different dates in 2D?

How to visualise P&L of Option Trading Strategy with different dates in 2D? To better understand, get intuitive feeling and think about what's going on. Especially highlighting the maximum ...
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50 views

Hedging option delta

Let's say I am long 1000 50 delta call options. I need to hedge my deltas now. There can be infinite ways to do this. How should I think about proceeding wit this? My first thought was, if the ...
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0answers
107 views

construction of 25 delta butterfly

Could anyone explain why the 25-delta butterfly strategy is constructed by 0.5*(25-delta call + 25-delta put) - ATM straddle? Especially, what the term "25-delta" represents in "25-delta butterfly ...
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0answers
56 views

Option arbitrage on two correlated or cointegrated underlying assets

If two indices are highly cointegrated, does it allow for some set of statistical arbitrage strategies for european options for which those indices are single underlyings ? Does answer change if ...
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2answers
108 views

Transaction costs in option market

The transaction costs in option market could be quite large. The bid ask spread of a SP500 firm could be around 15% of the mid-quote when I check the data. Since I do not have data on transaction ...
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154 views

Understanding delta based strike selection in an Iron Condor

I am reading a small book on the proper use of Iron Condors (link). I do not use these strategies as I have had a very hard time being profitable on them. This book mentions some strategies to ...
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172 views

Exotic option arbitrage

Suppose an exotic European option has a sub hedging (price being lower than the target) portfolio of vanilla European options all with the same expiry as the exotic option. The sub hedging portfolio ...
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1answer
119 views

To Collar or not to Collar

I have a conundrum. I have a stock that has had considerable price appreciation over the past year. Well over 100%. I no longer see any factor (or fundamentals) supporting it's current price (in the ...
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245 views

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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1answer
156 views

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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2answers
306 views

Positive PnL with long volatility strategy

Suppose I was interested in longing volatility. Suppose I bought a long straddle today which expires in 3 months. Suppose that volatility was very high in those 3 months, however, the stock expires at ...
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1answer
382 views

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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0answers
44 views

How to replicate a stock portfolio using barrier call options?

I want to invest in a certain stock portfolio using long down-and-out barrier options. But I am not sure in what ratio to buy the barrier options to retain the same exposure to the volatility of the ...
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1answer
70 views

Optimal Covered Call Strategy [closed]

How do I compute the optimal strike / expiry / when to close or roll for a covered call strategy on a highly liquid underlying (e.g. SPY)?
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1answer
64 views

Strategy to write uncovered put and call

I found a strategy called "covered combo" where you sell 1 put, 1 call, and purchase 100 shares of the underlying; is there a name for doing this without purchasing the 100 shares?
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58 views

How Are Option Model Assumptions Justified In Practice

I am reading this article, and I am wondering how comments like there may be a 50/50 chance that the underlying asset price can increase or decrease by 30 percent in one period. are reconciled with ...
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5answers
14k views

True or False? An option's price will always be greater than or equal to its intrinsic value

Since if the option's price is lower than its intrinsic value (eg. strike price - current stock price for puts), then an arbitrage opportunity arises from buying the option at bargain and then ...

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