straddle.bls {FinancialMath}

Straddle Spread - Black Scholes

Description

Gives a table and graphical representation of the payoff and profit of a long or short straddle for a range of future stock prices. Uses the Black Scholes equation for the call and put prices.

Usage

straddle.bls(S,K,r,t,sd,position,plot=FALSE)

Arguments

S

spot price at time 0

K

strike price of the call and put

r

continuously compounded yearly risk free rate

t

time of expiration (in years)

sd

standard deviation of the stock (volatility)

position

either buyer or seller of option ("long" or "short")

plot

tells whether or not to plot the payoff and profit

Details

Stock price at time t =S_t

Long Position:

For S_t<=K: payoff =K-S_t

For S_t>K: payoff =S_t-K

profit = payoff-(price_{call}+price_{put})*e^{r*t}

Short Position:

For S_t<=K: payoff =S_t-K

For S_t>K: payoff =K-S_t

profit = payoff+(price_{call}+price_{put})*e^{r*t}

Value

A list of two components.

Payoff

A data frame of different payoffs and profits for given stock prices.

Premiums

A matrix of the premiums for the call and put options, and the net cost.

See Also

option.put

option.call

strangle.bls

Examples

straddle.bls(S=100,K=110,r=.03,t=1,sd=.2,position="short")

straddle.bls(S=100,K=110,r=.03,t=1,sd=.2,position="long",plot=TRUE)