shortComboExpirationValueVT {bearishTrader} | R Documentation |
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).
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 ]"
)
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. |
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.
Returns a graph of the strategy.
MaheshP Kumar, maheshparamjitkumar@gmail.com
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
shortComboExpirationValueVT(10,8,12,1.50,2.00)