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 Ratio Backspreads
Issued on September 19 2011 par Ratio Backspread
Ratio Backspreads, another way to benefit from a self financing option strategy.
We saw that Ratio Spreads were strategies using options with different strikes, in order to make a profit from a directional move.
Here is another way to make profits from a self financing strategy : the ratio backspreads. I - Definition Ratio backspreads are strategies using options - on the same underlying asset, - with the same maturity - with different strikes And where 'Out of The Money' options are bought and the others are sold. II - Examples Using an asset which is worth $100, maturity is set for 180 days it could be built as : Using calls, - selling 10 calls struck at 90 / buying 20 calls struck at 115 - selling 13 calls struck at 85 / buying 30 calls struck at 90 - selling 5 calls struck at 105 / buying 8 calls struck at 120 Using puts, - Selling 10 puts struck at 120 / buying 22 puts struck at 80 - selling 33 puts struck at 85 / buying 50 puts struck at 75 - selling 25 puts struck at 110 / buying 38 puts struck at 105 III - A Self Financed Strategy As far as we remain within the "ratio" framework, it's needed to make sure that the strategy is a self financing one. Amount perceived from sold options have to be much larger that those which have been bought. IV - Graphs Call Ratio backspread : Spot = 1.35 - sold 20 calls, strike 1.31, 182 days, Implied volatility 8% - bought 46 calls, strike 1.39, 182 days, implied volatility 7%  Put Ratio backspreads : Spot = 100 - sold 20 puts, strike 103, 182 days, implied volatility 8% - bought 57 puts, strike 97, 182 days, implied volatility 7%  Next : Ratio Backspreads - Delta Neutral Previous : Ratio Spreads Advanced Strategies - INDEX Advanced Strategies - CHAPTER I Advanced Strategies - CHAPTER II Advanced Strategies - CHAPTER III Advanced Strategies - CHAPTER IV Advanced Strategies - CHAPTER V Ratio Backspread |
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