Thị trường quyền chọn tiền tệ và các chiến lược straddle strangle, bull spread,bear spread, đề thi đáp án môn kinh doanh ngoại hối Đại học Mở 2016

Straddle A straddle is an options strategy in which the investor holds a position in both a call and put with the same strike price and expiration date, paying both premiums.. Total fee

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MINISTRY OF EDUCATION AND TRAINING

HO CHI MINH CITY OPEN UNIVERSITY SCHOOL OF ADVANCED STUDY FACULTY

09/2016

GROUP ASSIGNMENT

FOREX TRADING SUBJECT

GROUP ONE Lecturer: MBA Pham Thu Huong

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Content

A Straddle 3

I Long straddle 3

1 Definition: 3

2 Employment 3

3 Payoff diagram and general formula for calculating profit: 4

4 Example: 5

II Short Straddle: 6

1 Definition: 6

2 Employment: 6

4 Example: 8

B Strangle 10

I Long strangle: 10

1 Definition: 11

2 Employment: 11

4 Example: 13

II Short strangle: 14

1 Definition: 14

2 Employment: 14

4 Example: 16

C Bull spread 17

I Bull call Spread: 18

1 Definition: 18

2 Employment: 18

3 Pay off diagram and general formula for calculating profit: 18

4 Example: 20

II Bull Put Spread: 21

1 Definition: 21

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2 Employment: 21

4 Example: 23

D Bear spread: 24

I Bear Call Spread: 24

1 Definition: 24

2 Employment: 24

4 Example: 26

II Bear Put Spread: 27

1 Definition: 27

2 Employment: 27

4 Example: 29

KEY WORDS: 30

References: 32

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A Straddle

A straddle is an options strategy in which the investor holds a position in both

a call and put with the same strike price and expiration date, paying both premiums This strategy allows the investor to make a profit regardless of whether the exchange rate goes up or down

I Long straddle

1 Definition:

Long straddle options are unlimited profit, limited risk options trading strategies that are used when the options trader thinks that the underlying currency will experience significant volatility in the near term

2 Employment

 To creating a long straddle position is to purchase one call option and one put option Both options must have the same strike price and expiration date

 Long straddle positions have unlimited profit and limited risk If the price

of the underlying currency continues to increase, the potential profit is unlimited If the price of the underlying currency goes to zero, the profit would be the strike price less the premiums paid for the options In either case, the maximum risk is the total cost to enter the position, which is the price of the call option plus the price of the put option

 Long straddle used by investor when they expect the fluctuation of the currency in any case in the future

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3 Payoff diagram and general formula for calculating profit:

We have: ST: the spot rate of underlying currency

F1: the premium paid of long call option contract

F2: the premium paid of long put option contract

X: the strike price of long call and long put contract

Total fee have to pay when the investor take long call and long put straddle is: F1+F2

Table 1: Payoff that investor receive when expiration coming in each case:

Spot rate(ST) Payoff from

long call

Payoff from long put

Total Total profit

ST>X ST-X 0 ST-X ST-X-(F1+F2)

The formula for calculating profit is given below:

 Maximum Profit = Unlimited

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 Profit Achieved When Price of Underlying > Strike Price of Long Call + Net Premium Paid OR Price of Underlying < Strike Price of Long Put - Net Premium Paid

 Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid OR Strike Price of Long Put - Price of Underlying - Net Premium Paid

The formula for calculating maximum loss is given below:

 Max Loss = Net Premium Paid + Commissions Paid

 Max Loss Occurs When Price of Underlying = Strike Price of Long Call/Put

There are 2 break-even points for the long straddle position The breakeven points can be calculated using the following formulae

 Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid

 Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

4 Example:

The A sign 2 contract:

 Have a long call option contract with Bank A to buy USD paid by VND with 100.000 USD with the exchange rate USD/VND 22.330D, 1 month expiration, premium paid: 700/USD

 Have a long put option contract with Bank B to buy USD paid by VND with 100.000 USD with the exchange rate USD/VND 22.330D, 1 month expiration, premium paid: 500/USD

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Exchange

rate

Payoff from long call

Payoff from long put

2 Employment:

 To create a short straddle position is to purchase one call option and one put option Both options must have the same strike price and expiration date

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 Short straddle positions have limited profit and unlimited risk If the price

of the underlying currency continues to increase, the potential profit is limited If the price of the underlying currency goes to zero, the profit would be the strike price less the premiums paid for the options In either case, the maximum risk is the total cost to enter the position, which is the price of the call option plus the price of the put option

 Short straddle used by investor when they expect the slight fluctuation of the currency in any case in the future

We have : ST: the spot rate of underlying currency

X: the strike price of long call and long put contract

Total fee that the seller get from short call and short put is F1+F2

Table 2: Payoff that seller receive when expiration coming in each case:

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Spot rate

(S T )

Payoff from short call

Payoff from short put

S T < X 0 - (X - S T ) - (X - S T ) - (X - S T ) + (F 1 +F 2 )

S T > X -(S T - X) 0 -(S T - X) -(S T - X) + (F 1 +F 2 )

The formula for calculating profit is given below:

 Profit = Net Premium Received - Commissions Paid

 Max Profit Achieved When Price of Underlying = Strike Price of Short Call/Put

The formula for calculating loss is given below:

 Maximum Loss = Unlimited

 Loss Occurs When Price of Underlying > Strike Price of Short Call + Net Premium Received OR Price of Underlying < Strike Price of Short Put - Net Premium Received

 Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net

Premium Received + Commissions Paid

There are 2 break-even points for the short straddle position The

breakeven points can be calculated using the following formulae

 Upper Breakeven Point = Strike Price of Short Call + Net Premium

Received

 Lower Breakeven Point = Strike Price of Short Put - Net Premium

Received

4 Example:

 Have a short call option contract with Bank A to buy USD paid by VND with 100.000 USD with the exchange rate USD/VND 22.330D, 1 month expiration, premium paid: 700/USD

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 Have a short put option contract with Bank B to buy USD paid by VND with 100.000 USD with the exchange rate USD/VND 22.330D, 1 month expiration, premium paid: 500/USD

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Note: Base on the situation of currency market, we can choose the appropriate strategy For long straddle option, investor get an unlimited profit and for short straddle option, investor get a maximum profit from net premiums

B Strangle

Strangle option is an options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying currency This option strategy is profitable only if there are large movements in the price of the underlying currency This is a good strategy if investor think there will be a large price movement in the near future but are unsure of which way that price movement will be

I Long strangle:

A strangle is an options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying currency This option strategy is profitable only if there are large movements in the price of the underlying currency This is a good strategy if you think there will be a large price movement in the near future but are unsure

of which way that price movement will be

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1 Definition:

Long strangle option is a strategy in which the investor hold both long call and long put This strategy is illustrated just the same as long straddle mentioned above, but long strangle has the strike price of put option 1 different from strike price of call option 2 (in general, the strike price of long put option is lower than the strike price of long call option)

2 Employment:

 To creating a long strangle position is to purchase one call option and one put option Both options have the different strike price and the same expiration date

 When long strangle option approach to the expiration date, the more price extend toward 2 side the more profit we get If price is inside the range of

X1 and X2, the loss we get is two premium that we paid and if price is outside the range of X1 and X2 we will get profit In addition, with the long strangle we will get more loss than long straddle

 The strategy exercised when they expect the fluctuation of the currency in

a short term in the future

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X1: the strike price of long put contract

X2 : the strike price of long call contract

Total fee have to pay when the investor take long call and long put strangle is: F1+F2

Spot rate

(S T )

Payoff from long call

Payoff from long put

S T < X 1 0 X 1 - S T X 1 - S T (X 1 - S T ) - (F 1 +F 2 )

S T > X 2 S T - X 2 0 S T - X 2 (S T - X 2 ) - (F 1 +F 2 )

The formula for calculating profit/loss is given below:

 Maximum Profit = Unlimited

 Profit Achieved When Price of Underlying > Strike Price of Long Call + Net Premium Paid OR Price of Underlying < Strike Price of Long Put - Net Premium Paid

 Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid OR Strike Price of Long Put - Price of Underlying - Net Premium Paid

The formula for calculating maximum loss is given below:

 Max Loss = Net Premium Paid + Commissions Paid

 Max Loss Occurs When Price of Underlying is in between Strike Price of Long Call and Strike Price of Long Put

There are 2 break-even points for the long strangle position The breakeven points can be calculated using the following formula:

 Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid

 Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

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4 Example:

 Have a long call option contract with Bank A to buy USD paid by VND with 100.000 USD with the exchange rate USD/VND 22,330D,

1 month expiration, premium paid: 700/USD

 Have a long put option contract with Bank B to buy USD paid by VND with 100.000 USD with the exchange rate USD/VND 22,250 VND, 1 month expiration, premium paid: 500/USD

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II Short strangle:

1 Definition:

An option strangle is a strategy where the investor holds a position in both selling a call and selling a put with the same maturity and underlying currency, but with the different strike price, the call strike price is above the put strike price Typically both options are out-of-the-money when the strategy is initiated

The short strangle option strategy is a limited profit, unlimited risk options trading strategy

2 Employment:

The short strangle is considered a neutral position - neutral because the strangle seller does not have a definite bullish or bearish outlook for the underlying currency Instead the seller expects decreased volatility , and for the underlying currency to stabilize between the two strike prices by expiration As well, the holder wants a decrease in option implied volatility that could enhance profitability before expiration, perhaps with even more of

a move in the underlying currency than expected

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F1: the premium paid of short call option contract

F2: the premium paid of short put option contract

X1: the strike price of short put contract

X2 : the strike price of short cal contract

Total fee that the seller get from short call and short put is F1+F2

Spot rate(ST) Payoff from

short call

Payoff from short put

Total Total profit

ST<X1 0 -(X1-ST) -(X1-ST) -(X1-ST)+(F1+F2)

ST>X2 -(ST-X2) 0 -(ST-X2) -(ST-X2)+(F1+F2)

The formula for calculating maximum profit is given below:

 Max Profit = Net Premium Received - Commissions Paid

 Max Profit Achieved When Price of Underlying = Strike Price of Short Call/Put

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The formula for calculating loss is given below:

 Maximum Loss = Unlimited

 Loss Occurs When Price of Underlying > Strike Price of Short Call + Net Premium Received OR Price of Underlying < Strike Price of Short Put - Net Premium Received

 Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net Premium Received + Commissions Paid

There are 2 break-even points for the short straddle position The breakeven points can be calculated using the following formulae

 Upper Breakeven Point = Strike Price of Short Call + Net Premium Received

 Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

4 Example:

 Have a short call option contract with Bank A to buy USD paid by VND with 100.000 USD with the exchange rate USD/VND 22,330D,

1 month expiration, premium paid: 700/USD

 Have a short put option contract with Bank B to buy USD paid by VND with 100.000 USD with the exchange rate USD/VND 22,250 VND, 1 month expiration, premium paid: 500/USD

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Exchange

rate

Payoff from short call

Payoff from short put

C Bull spread

A bull spread is an option strategy in which maximum profit is attained if the underlying currency rises in price Either calls or puts can be used The lower strike price is purchased and the higher strike price is sold The options have the same expiration date

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I Bull call Spread

1 Definition:

A bull call spread is an options strategy that involves purchasing call options

at a specific strike price while also selling the same number of calls of the same currency and expiration date but at a higher strike A bull call spread is used when a moderate rise in the price of the underlying currency is expected Bull call spreads are a type of vertical spread A bull call spread may be referred to as a long call vertical spread Vertical spreads involve simultaneously purchasing and writing an equal number of options on the same underlying currency, same options class and same expiration date However, the strike prices are different

2 Employment:

Bull call spread is made by purchasing a call option with the lower Strike price

X1 and sell a call option with the higher strike price X2 Two options have the same quantity but the different Strike price Because of the decreasing of premium when strike price increase, so that premium of the selling option always lower than the purchasing option

This can be put the investor in a safety range

There are 3 kind of “Bull call spread”:

 Buy out of the money, sell further out of the money call option

 Buy in the money/ at the money and sell in the money call option

 Buy further in the money call option and sell in the money call option

3 Pay off diagram and general formula for calculating profit:

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