Friday, October 20th, 2017

What is this options strategy?

I have a question specific strategy choice. At about 55 operations bolsa.Alguien bear put spread makes a purchase the # 55 and selling the put 55 in the same vencimiento.Al same time and same maturity, a call of 60 is bought and sold call is 55 . So now we have four options: 1. Buy PUT2 55 April. Sell PUT3 April 1950. Buy llamadas4 60 April. Sell calls in April 1955. What is the purpose of this strategy?

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One Response to “What is this options strategy?”
  1. zman492 says:

    What you described is a synthetic short fence.

    The combination of the long put and the short call with the same expiry and strike price is a synthetic short stock position since it has the same risk-reward characteristics as a short stock position.

    A short fence is a short position in the underlying, a long call at a higher strike and a short put at a lower strike.

    It is a limited risk/limited reward strategy. If held until expiration, the maximum profit occurs if the underlying is at or below the lowest strike price, and the maximum loss occurs if the underlying is at or above the highest strike price.

    For all practical purposes the risk-reward of the entire spread is eqivalent to the risk-reward of a bearish vertical spread with strike prices of $60 and $50. You could construct the bearish vertical spread either by

    Buying a call with a $60 strike and selling a call with a $50 strike

    or by

    Buying a put with a $60 strike and selling a put with a $50 strike.

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