Purchase of secured options for sale, Use of options for speculative...

Purchase of secured options for sale

This strategy is used to protect (hedge) against a possible reduction in the share premium, especially in an unstable market. With this strategy, the investor buys a basic share and an option to sell the same stock. Draw a diagram of the profits of such a portfolio, believing that S = 80 rubles, K = 80 rubles. and the option to sell is 9 rubles. (Figure 6.12).

As we see, such a strategy is beneficial when there are significant positive fluctuations in the share price (in our case, when the price of the main share exceeds 89 rubles). Simultaneously, with any decrease in the price of the main share, the portfolio return will never drop below 9 rubles. - the value of the option premium. Since the amount of losses is limited, and the profit is not limited, the probability distribution when buying options for selling has a positive asymmetry, which is welcomed by investors. In this regard, this strategy is quite popular. It is inexpedient to apply it in conditions of a stable market, since with small positive and negative fluctuations in the share price, it gives losses greater than a portfolio of shares.

Profits when buying options for sale

Fig. 6.12. Profits when buying options for sale

Acquisition of purchase options and a risk-free bond, based on equality (6.1), should give the same profit graph as the option of buying a share and a put option considered above.

A similar portfolio is formed by purchasing for 10 rubles. option to buy and for 79 rubles. risk-free bond at 7% per annum, accrued continuously. Both the option and the bond end after 65 days. If, within the specified period, the share will be worth less than 80 rubles, then the option does not make sense to sell, and the investor will lose 9 rubles. (10 rubles is an option, but 1 ruble is the interest on the bond). If the stock price exceeds 80 rubles, the portfolio will give a return ( S - to ) plus 1 rub. interest on the bond.

From the point of view of professional managers, this strategy is less attractive than the equivalent "buy a stock and a call option". This is explained by the fact that, with this option, about 90% of funds must be invested in risk-free bonds, which can cause mistrust of customers. In addition, options for buying are considered more risky.

You can compare the above strategies only on the basis of real data, because in many respects the results are explained by exogenous factors (primarily market instability).

We considered the ways of assessing the risk of portfolios based on shares and risk-free bonds based on the fundamental position about the normal distribution of the return rates of such portfolios. This allows managers and individual investors to assert that an increase, say, the number of risk-free bonds in the portfolio will reduce both the return of the portfolio and its risk. Using the same options leads to the fact that the distribution of portfolio returns becomes different from the normal distribution (has an asymmetry). This circumstance makes it difficult to assess the results of the portfolio, i.e. finding the optimal risk/yield ratio, because you can not apply the familiar values ​​of the expected return, variance, or beta coefficient for this.

Using options for speculative games to raise or lower the stock price

The opportunities for financial leverage (use of borrowed funds) and insurance against significant losses make it possible to speculate on the expected fluctuations in the price of the main share. For example, if the investor believes that the stock price will rise, he can buy either the stock itself or an option to buy it. In the case of an option purchase, it also guarantees itself against losses below the option price (option premium). In practice, it is often the purchase of several options and their various combinations, or with each other, or with the main share.

To show the basic techniques of speculation, let's imagine an example of a conditional quotation of stock options for Orion on February 10 (Table 6.2).

We will open separate ways of forming portfolios that have their own conventional names.

Scissors ( straddles ) - method, the essence of which is buying or selling options and options for sale with identical characteristics (selling price and maturity). Used in anticipation of significant fluctuations in the price of the main share. Depending on whether options are bought or sold, distinguish between the strategy of long ( long ) and short ( short ) scissors. Long scissors in our example are formed by buying at a price of 4.63 rubles. April option for a purchase with a selling price of 45 rubles. and the simultaneous purchase of the April option to sell at a price of 2.62 rubles. Let's consider what profit this strategy can bring depending on the stock's price at the moment of the option's end (Table 6.3).

Table 6.2

Orion quotes stock quotes quotation

The closing price of the shares, rubles.

Sales price, RUR.

The value of the call option, rubles.

The value of an option to sell, rubles.

March

April

March

April

45

40

7.00

7.25

0.76

0.88

45

45

3.63

4.63

2.00

2.62

45

50

1.64

2.75

5.75

6.75

Table 6.3

Payments in the strategy of long scissors

Option

Purchase costs

Expected return of an option at a stock price, RUB:

(r = 0)

35

45

55

Purchase Option

-4.63

0

0

+ 10.00

Option to sell

-2.62

+ 10.00

0

0

Total Cost

-7.25

-7.25

-7.25

-7.25

Profit

-

+2.75

-7.25

+2.75

We will transfer this data to the graph (Figure 6.13). Apparently, such a strategy makes sense if the investor is confident of a significant decrease (below 37.75 rubles) or an increase (above 52.25 rubles) of the share price - it is in these cases that he will make a profit. The fluctuation of the price of the main share within 37.75-52.25 will bring losses that do not exceed 7.25 rubles. - the total cost of both options.

Short Scissors is a strategy that involves the simultaneous sale of options to buy and options to sell the same stock. In our case, short scissors are obtained if you sell the April option to buy at a price of 4.63 rubles. and an option to sell at a price of 2.62 rubles. The amount of option premiums received in this case represents the maximum profit that an investor can get (figure 6.14).

Profit with a strategy of long scissors

Fig. 6.13. Profit with a long scissors strategy

Profit with a strategy of short scissors

Fig. 6.14. Profit with a strategy of short scissors

As follows from Fig. 6.14, short scissors should be used with the expected stable market of the main share; if the fluctuations are very high, then the investor will incur significant losses.

The rack ( strangles ) is different from scissors. In order to better understand this difference, we need to introduce three terms. If, at the time of the immediate exercise of the option, the price of the underlying share is equal to the selling price, we will assume that the option "on par ( at-the-money - in United States practice the term with money is used). If, at the moment of immediate realization, the option gives the proceeds, we will assume that it is higher than parity ( in-the-money - by the accepted terminology in money ); Finally, when immediate implementation gives a loss, then the option below parity ( out-of-the-money - without money ). The principle of scissors is built with the use of options on parity & quot ;. At the rack, both options are taken "below parity", preferably by the same amount.

In our example, the long racking strategy ( long strangles) is implemented if the investor purchases at a price of 0.88 rubles. April option for sale with a selling price of 40 rubles. Since the market price of the share is <45 = 45, which exceeds the selling price K = 40 rubles, then with the immediate realization of this option, the investor will incur losses of 5 rubles. - he will sell for 40 rubles. what costs 45 rubles. this option is below par. & quot ;. Simultaneously, the April option is purchased for a purchase with a sale price of 50 rubles. at a price of 2.75 rubles. This option is also "below par". A graph of the profits of a long rack is shown in Fig. 6.15.

Profit with a long racking strategy

Fig. 6.15. Profit with a long racking strategy

The advantage of a long rack in comparison with long scissors is that for their design, lower initial costs are required (3.63 rubles in comparison with 7.25 rubles). The disadvantage is the need for more significant fluctuations in the share price (outside the range of 36.37-53.63) for profit.

A short rack ( short strangles) can be obtained by selling an April option to buy with a selling price of 50 rubles. for 2.75 rubles. and the April option for sale with a selling price of 40 rubles. for 0.88 rubles. Again, both options are below par. & Quot ;. Graphical interpretation of this method is shown in Fig. 6.16.

Profit with a short racking strategy

Fig. 6.16. Profit with a short racking strategy

A short rack in comparison with a short scissors gives a smaller profit, but on a larger portion of the stock price fluctuation.

Four of the following methods use common stock terms in their names: bear - when the stock prices fall, and the "bull" - when prices rise. Hence the names of the ways - bear spread and bull spread.

Spread bull with an option to buy is obtained by purchasing one buy option at par. and selling another option on the purchase "below par.". In our case, we need to buy an April 45 option to buy at a price of 4.63 rubles. and sell the April 50 option to buy at a price of 2.75 rubles., Having costs equal to (4.63 - 2.75) = 1.88 rubles. The profit diagram in this case is shown in Fig. 6.17.

As follows from Fig. 6.17, with this strategy, both possible losses and possible profits are limited. The profit is equal to the difference in selling prices (5.00 rubles.) And the cost of purchasing options (1.88 rubles.): 5.00-1.88 = 3.12 rubles. In this case, the investor stakes on the growth of the share price.

A bull spread with an option to sell: you can construct a portfolio of options for sale with a bull spread. To do this, you need to sell the April 45 option to sell for 2.75 rubles, buy 40 options for sale for 0.88 rubles. and get 1.87 rubles. revenue, which is the maximum profit. The maximum losses at the same time are 3.12 rubles. (Figure 6.18).

Spread the bull with the option to buy

Fig. 6.17. Spread of a bull with an option to buy

Spread the bull with the option to sell

Fig. 6.18. Bull spread with option to sell

Bear spread can be obtained using options for both buying and selling. Bear spread with option to sell: is bought at parity one option for sale and sold below parity another option to sell.

Bear spread with an option to buy: sold "on parity" one option to buy and buy another "above parity". The outlines (without exact figures) of the profit curve in these cases are shown in Fig. 6.19. The bear spread is used for those cases when the investor expects a decrease in the share price.

Bear Spread

Fig. 6.19. Bear spread

Obviously, you can create portfolios by combining several options in them. An example of such an association is the butterfly spread.

The butterfly spread ( butterfly spread) can also be long and short. A short butterfly spread is obtained by purchasing two options for buying the at parity and the sale of two options to buy - one below par, another above par. In our case, a short spread of the butterfly will be obtained if you buy two April 45 options to buy at a price of 4.63 rubles. each and sell the April 40 option to buy for 7.25 rubles. and the April 50 option to buy for 2.75 rubles. As a result, the investor will receive revenue (-2 • 4.63 + 7.25 + 2.75) = 0.74 rubles.

The cash flows for this strategy are shown in Table. 6.4.

Table 6.4

Payouts using the butterfly spread strategy

Option

Costs

Estimated share price, rub.

40

45

50

Two options were purchased 45

-9.26

0

0

+ 10.00

Sold option 40

+7.25

0

-5.00

-10.00

Sold option 50

+2.75

0

0

0

Total received

+0.74

+0.74

+0.74

+0.74

Profit

-

+0.74

-4.26

+0.74

On the graph, this situation is as follows (Figure 6.20).

Profit with Butterfly

Fig. 6.20. Profit with butterfly spread

As you can see, this chart has a similarity to short scissors and is also used in anticipation of strong stock price fluctuations. This method is cheaper than scissors and a rack because of the income from the sale of options, but its profit is limited by the spread between the prices of bought and sold options, while the scissors and rack do not limit it.

The long butterfly spread is the sale of two options to buy on parity and buying one buy option "above par," and the other " below par.". It can be shown that in this case the graph is a symmetry of Fig. 6.20 about the axis X. The method is used if the investor expects a stable market. Its advantage is that losses are limited.

It should be borne in mind that scissors and spreads are used by speculators with a very short time horizon. Sale of secured options for buying and selling is often used in long-term investments

thematic pictures

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