How to Make Money Trading Derivatives: An Insider's Guide by Ashwani Gujral

Author:Ashwani Gujral [Gujral, Ashwani]
Language: eng
Format: epub, azw3
ISBN: 9788170949312
Publisher: Orient Paperbacks
Published: 2016-08-16T00:00:00+00:00

Figure 8.2 (a)

Figure 8.2 (b)

Figure 8.2 (a & b): Payoff diagram for the bull call spread

Profit: The sale of this Satyam 180/200 put spread gives an inflow of Ͳ 8. This credit is the maximum profit one can achieve. If at expiration, the underlying has a price above the exercise price of the short put, then both options expire worthless, because these are both puts, and a put is in-the-money only if it has intrinsic value.

Sell 1 Satyam April 200 put @ Ͳ 15

Buy 1 Satyam April 180 put @ Ͳ 7

Credit Ͳ 8

Loss: The worst-case scenario for the bull put spread would be if the underlying expires below the higher strike price, less the premium collected at expiration. Accordingly, the seller of this spread can lose the difference in the strike prices, minus the initial credit. Thus:

Maximum Loss = (Ͳ 200-180) — 8 = Ͳ 12

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