Wednesday, August 8, 2012

Binary Options Bull Market - Daily report 8th August Russell TF Futures



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text courtesy Of Wikepedia.
A bull call spread is constructed by buying a call option with a low exercise price (K), and selling another call option with a higher exercise price.

Payoffs from a bull call spread
A bull spread can be constructed using two call options.Often the call with the lower exercise price will be at-the-money while the call with the higher exercise price is out-of-the-money. Both calls must have the same underlying security and expiration month.
Break even point= Lower strike price+ Net premium paid


[edit] ExampleTake an arbitrary stock XYZ currently priced at $100. Furthermore, assume it is a standard option, meaning every option contract controls 100 shares.
Assume that for the next month, a call option with a strike price of $100 costs $3 per share, or $300 per contract, while a call option with a strike price of $115 is selling at $1 per share, or $100 per contract.
A trader can then buy a long position on the $100 strike price option for $300 and sell a short position on the $115 option (aka write a $115 call) for $100. The net debit for this trade then is $300 - 100 = $200.
This trade results in a profitable trade if the stock closes on expiry above 102. If the stock's closing price on expiry is $110, the $100 call option will end at $10 a share, or $1000 per contract, while the $115 call option expires worthless. Hence a total profit of $1000 - 200 = $800.
The trade's profit is limited to $13 per share, which is the difference in strike prices minus the net debit (15 - 2). The maximum loss possible on the trade equals $2 per share, the net debit.
[edit] Bull put spreadA bull put spread is constructed by selling higher striking in-the-money put options and buying the same number of lower striking in-the-money put options on the same underlying security with the same expiration date. The options trader employing this strategy hopes that the price of the underlying security goes up far enough such that the written put options expire worthless. Break even point=upper strike price- Net premium paid
[edit] ExampleTake an arbitrary stock ABC currently priced at $100. Furthermore, assume again that it is a standard option, meaning every option contract controls 100 shares. Trader is expecting that the price of the stock will raise.
Assume that for next month, a put option with a strike price of $105 costs $8 per share, or $800 per contract, while a put option with a strike price of $125 is selling at $27 per share, or $2700 per contract.
A trader can then open a long position on the $105 strike put option for $800 and open a short position on the $125 put option for $2700. The net credit for this trade then is $2700 - 800 = $1900.
This trade will be profitable if the stock closes on expiry above $106. If the stock's closing price on expiry is $110, the $105 put option will expire worthless while the $125 put option will end at $15 a share, or $1500 per contract. Hence a total profit of $1900 - 1500 = $400.
The trade's profit is limited to $19 per share, which is equal to the net credit. The maximum loss on the trade is $1 per share which is the difference in strike prices minus the net credit (20 - 19).