shortComboExpirationValueVT {bearishTrader}

Calculates the Value/Payoff per share at expiration for Short Combo and draws its graph in the Plots tab.

Description

Short Combo is also known as short risk reversal and results from buying a put option with a strike price X1L and selling a call option with a strike price X2H with the same expiration date. Here, X2H > X1L. Outlook of the trader (investor) is bearish. This strategy results in capital gain (Kakushadze & Serur, 2018).

Usage

shortComboExpirationValueVT(
  ST,
  X1L,
  X2H,
  PX1L,
  CX2H,
  hl = 0,
  hu = 1.6,
  xlab = "Spot Price ($) at Expiration",
  ylab = " Value / Payoff [VT] at Expiration ($)",
  main = "Short Combo [ VT ]"
)

Arguments

ST

Spot Price at time T.

X1L

higher Strike Price or eXercise price.

X2H

lower Strike Price or eXercise price.

PX1L

Put Premium paid for the bought Put at Lower Strike.

CX2H

Call Premium received for the sold Call at higher Strike .

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 compute the Value/Payoff per share at expiration for Short Combo and draw its graph in the Plots tab. EXAMPLE, Buy HypoCRM December 8 Put at $1.50 and short HypoCRM December 12 call at $2.00. This is a net credit trade as premium received on shorted call (CX1H) at a higher strike is more than the premium paid on the bought put (P1XL) at a lower strike.

Value

Returns a graph of the strategy.

Author(s)

MaheshP Kumar, [e-mail]

References

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

shortComboExpirationValueVT(10,8,12,1.50,2.00)