longPutInitialValueV0 {bearishTrader}

Displays graph of the Initial Value as Net Debit (V0Dr) per share or unit of the underlying on initiation day for European Put Buyer in the Plots tab.

Description

Displays graph of the Initial Value as Net Debit (V0Dr) per share or unit of the underlying on initiation day for European Put Buyer in the Plots tab.

Usage

longPutInitialValueV0(
  ST,
  X,
  P,
  hl = 0,
  hu = 1.5,
  xlab = "Spot Price ($) at Expiration",
  ylab = " Initial Value [ V0] ($)",
  main = "Long Put / Put Buyer V0 [Dr/Cr]"
)

Arguments

ST

Spot Price at time T.

X

Strike Price or eXercise price.

P

Put Premium or Put price.

hl

lower bound value for setting lower-limit of x-axis displaying spot price.

hu

upper bound value for setting upper-limit of x-axis displaying spot price.

xlab

X-axis label.

ylab

Y-axis label.

main

Title of the Graph.

Details

According to conceptual details given by Cohen (2015), and a closed-form solution provided by Kakushadze and Serur (2018), this method is developed, and the given examples are created, to display the Initial Value as Net Debit (V0Dr) per share or unit of the underlying on initiation day for European Put Buyer. EXAMPLE, Buying HypoTech December 10 put at $2.00. Here, X is the exercise price (strike price) of the option, ST is the price of the underlying at time T, and C is the price (also called premium) paid by the European Call Buyer to the Call Seller. For a Put Buyer there is outflow of cash in the form of premium paid for buying the right to sell and hence it is a Net Debit Position that is represented by V0Dr.

Value

Returns a graph of the strategy.

Author(s)

MaheshP Kumar, [e-mail]

References

Chance,D.M.(2019). Basics of Derivative Pricing and Valuation. In CFA Program Curriculum 2020 Level I Volumes 1-6. (Vol. 5, pp. 385-453). Wiley Professional Development (P&T). ISBN 9781119593577, https://bookshelf.vitalsource.com/books/9781119593577
Cohen, G. (2015). The Bible of Options Strategies (2nd ed.). Pearson Technology Group. https://bookshelf.vitalsource.com/books/9780133964448
Kakushadze, Z., & Serur, J. A. (2018, August 17). 151 Trading Strategies. Palgrave Macmillan. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3247865

Examples

longPutInitialValueV0(10,10,2)
longPutInitialValueV0(40,40,3,0.8,1.2)