35 lines
1.1 KiB
Plaintext
35 lines
1.1 KiB
Plaintext
Mixing Exposure • 239
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Strike Price Selection
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Strike price selection for a short diagonal is more difficult because there
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are three strikes to price this time. Looking at the current pricing for a
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call spread with the short call struck at $55, I get the following selection of
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credits:
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Upper Call Strike ($)
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Call Spread
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Net Credit ($)
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Percent Total
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Risk Percent Total Return
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57.50 1.27 17 49
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60.00 2.14 33 83
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62.50 2.44 50 94
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65.00 2.51 67 97
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70.00 2.59 100 100
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Looking at this, let’s say we decide to go with the $55.00/$62.50 call
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spread. Doing so, we would receive a net credit of $2.44. Now selecting the
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put to purchase is a matter of figuring out the leverage of the position with
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which you are comfortable.
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Strike ($) Delta (Debit) Credit ($) Put Lambda (%)
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20.00 –0.02 2.20 –4.5
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23.00 –0.02 2.11 –4.6
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25.00 –0.03 2.05 –4.6
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28.00 –0.04 1.91 –4.8
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30.00 –0.05 1.78 –4.8
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33.00 –0.07 1.57 –4.8
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35.00 –0.09 1.38 –4.8
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38.00 –0.12 0.99 –4.8
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40.00 –0.15 0.67 –4.7
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42.00 –0.17 0.30 –4.7
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45.00 –0.23 (0.43) –4.5
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47.00 –0.26 (1.01) –4.4
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50.00 –0.33 (1.91) –4.4
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52.50 –0.39 (3.11) –4.0 |