38 lines
2.1 KiB
Plaintext
38 lines
2.1 KiB
Plaintext
542A COMPleTe gUIde TO THe FUTUreS MArKeT
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Other Spread Strategies
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Money spreads represent only one class of option spreads. A complete discussion of option spread
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strategies would require a substantial extension of this section—a degree of detail beyond the scope
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of this presentation. The following are examples of some other types of spreads.
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time spread. A time spread is a spread between two calls or two puts with the same strike price,
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but a diff erent expiration date. An example of a time spread would be: long 1 August $1,300
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gold futures call/short 1 december $1,300 gold futures call. Time spreads are more complex
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than the other strategies discussed in this section, because the profi t/loss profi le at the time
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of expiration cannot be precisely predetermined, but rather must be estimated on the basis of
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theoretical valuation models.
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Diagonal spread. This is a spread between two calls or two puts that diff er in terms of both the
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strike price and the expiration date. An example of a diagonal spread would be: long 1 August
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$1,200 gold futures call/short 1 december $1,250 gold futures call. In eff ect, this type of
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spread combines the money spread and the time spread into one trade.
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butterfl y spread. This is a three-legged spread in which the options have the same expiration
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date but diff er in strike prices. A butterfl y spread using calls consists of two short calls at a given
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strike price, one long call at a higher strike price, and one long call at a lower strike price.
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The list of types of option spreads can be significantly extended, but the above examples
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should be sufficient to give the reader some idea of the potential range of complexity of spread
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Price of August gold futures at option expiration ($/oz)
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Profit/loss at expiration ($)
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1,000
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3,750
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5,000
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2,500
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0
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−1,250
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−2,500
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1,250
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1,050 1,100 1,150 1,200 1,250
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Breakeven price
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= $1,140.20
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1,300 1,350 1,400
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Futures price at time
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of position initiation
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FIGURE 35.21 Profi t/loss Profi le; Bear Put Money Spread (Short Put with lower Strike Price/
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long Put with Higher Strike Price) |