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.10 Data Points for Short Binary Option TradeTrade Figure CalculationUnderlying asset S&P futuresMarket price 1280Expiration 1 dayStrike price 1290Long/Short Short (sell)Size 1 contractPrice Bid price of $30/contractMax loss $70 ($100 bid price) × number ofcontracts = max loss($100 $30) × 1 =$70 × 1 = $70Collateral $70 Collateral = max lossMax profit $30 Bid price × number of contracts =max profit$30 × 1 =$30Risk vs.reward.42:1 Max profit / max loss = risk vs.reward$30 / $70 =.42:1 68 BINARY OPTIONSat any time before expiration.You will learn how this works in the subse-quent sections of this text.Exhibit 5.11 is an image of an option chain of the US 500 binary optionsstrike prices with 12 hours until expiration.Contract Bid OfferDaily US 500 (Mar) > 1268 2.1 5Daily US 500 (Mar) > 1265 4.9 7.8Daily US 500 (Mar) > 1262 9.7 12.7Daily US 500 (Mar) > 1259 17 20Daily US 500 (Mar) > 1256 26 29Daily US 500 (Mar) > 1253 36.1 40.1Daily US 500 (Mar) > 1250 48.1 51.6Daily US 500 (Mar) > 1247 60.1 63.1Daily US 500 (Mar) > 1244 71.2 73.9Daily US 500 (Mar) > 1241 79.9 83.4Daily US 500 (Mar) > 1238 87.4 90.4Daily US 500 (Mar) > 1235 92.3 95.3Daily US 500 (Mar) > 1232 95.4 98.412 hours to expiration, futures trading at 1250EXHIBIT 5.11 Option ChainOut of the-Money Short Settlement ExampleRationale The S&P futures are currently trading at 1250.You assumethat the S&P futures will go down in price, ending up below 1244 atexpiration.Entry Breakdown You sell 10 contracts of the US 500 binary optionwith a strike price of 1244 and a bid price of $71.2 per contract.The re-quired collateral to place this trade is $288, and the maximum you stand tolose is also $288.Exit Breakdown If you hold until expiration and the S&P futures closebelow 1244, you will get a $100 settlement.This will provide you with aprofit of $71.2 per contract, which is the option s premium.If the futures close above 1244, you will get $0 per contract at expira-tion, and will lose your collateral of $28.8 per contract.Exhibit 5.12 is a graph of the P&L of going short 10 contracts of the1244 US 500 binary option.The x axis represents the price of the underly-ing, and the y axis represents P&L. Settlement 69Short 10 contracts of > 1244 binary option1244binary optionProfit750500Max Profit = $712250Price ofUnderlying(S&P futures)Max Loss = $288 250 500 The light grey shaded area representsthe maximum loss for 10 contracts.Market Price(= 1250)Loss 750The dark grey shaded area representsthe maximum profit for 10 contracts.EXHIBIT 5.12 P&L Graph of a Short Out of the Money Binary Option TradeSummary Exhibit 5.13 contains all of the data points for this trade.EXHIBIT 5.13 Data Points for Short Out of the Money Binary Option TradeTrade Figure CalculationUnderlying asset S&P futuresMarket price 1250Expiration 1 dayStrike price 1244Long/Short Short (sell)Size 10 contractsPrice Bid price of $71.2/contractMax loss $288 ($100 bid price) × numberof contracts = max loss($100 $71.2) × 10 =$28.8 × 10 = $288Collateral $288 Collateral = max lossMax profit $712 Bid price × number ofcontracts = max profit$71.2 × 10 =$712Risk vs.reward 2.47:1 Max profit / max loss = riskvs.reward$712 / $288 = 2.47:1 70 BINARY OPTIONSIn the Money Short Settlement ExampleRationale If you would like to speculate that the S&P futures will staybelow 1256 at expiration, you can sell the > 1256 contract.Entry Breakdown You sell one contract of the US 500 binary optionwith a strike price of 1256 and a bid price of $26 per contract.The requiredcollateral to place this trade is $74, and the maximum you stand to lose isalso $74.Exit Breakdown If you hold until expiration and the S&P futures closebelow 1256, you will get a $100 settlement.This will provide you with aprofit of $26 per contract ($100 settlement $74 collateral).The $26 is theoption s premium.If the futures close above 1256, you will get $0 per contract at expira-tion, and will lose your collateral of $74 per contract.Exhibit 5.14 depicts the P&L of going short one contract of the 1256 US500 binary option.The x axis represents the price of the underlying, andthe y axis represents P&L.Short one contract of > 1256 binary optionProfit 100125675binary option5025Max Profit = $26Price ofUnderlying(S&P futures) 25Max Loss = $74 50 75Loss 100The light grey shaded area representsMarket Price the maximum loss for one contract.(= 1250)The dark grey shaded area representsthe maximum profit for one contract.EXHIBIT 5.14 P&L Graph of a Short In the Money Binary Option TradeSummary Exhibit 5.15 contains all of the data points for this trade. Settlement 71EXHIBIT 5.15 Data Points for Short In the Money Binary Option TradeTrade Figure CalculationUnderlying asset S&P futuresMarket price 1250Expiration 1 dayStrike price 1256Long/Short Short (sell)Size 1 contractPrice Bid price of $26/contractMax loss $74 ($100 bid price) × number ofcontracts = max loss($100 $26) × 1 =$74 × 1 = $74Collateral $74 Collateral = max lossMax profit $26 Bid price × number of contracts= max profit$26 × 1 = $26Risk vs.reward.35:1 Max profit / max risk = risk vs.reward26 / 74 =.35:1At the Money Short Settlement ExampleRationale If you would like to speculate that the S&P futures will simplygo down and close below 1250 at expiration, you can sell the > 1250 contract.Entry Breakdown You sell five contracts of the US 500 binary optionwith a strike price of 1250 and a bid price of $48.1 per contract.The re-quired collateral to place this trade is $259.5 ($100 $48.1) × 5 contracts,which, of course, is the maximum you stand to lose.Exit Breakdown If you hold until expiration and the S&P futures closebelow 1250, you will get a $100 settlement.This will provide you with aprofit of $48.1 per contract ($100 settlement $51.9/contract collateral).The $48.1 is also the option s premium.On five contracts this is $240.5.If the S&P futures close above 1250, you will get $0 per contract at ex-piration and will lose your collateral of $51.9 per contract.Exhibit 5.16 depicts the P&L of going short five contracts of the 1250US 500 binary option.The x axis represents the price of the underlying, andthe y axis represents P&L. 72 BINARY OPTIONSShort five contracts of > 1250 binary option1250Profit 400binary option300200Max Profit = $240 [ Pobierz caÅ‚ość w formacie PDF ] |
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