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Basic Option Strategies
FX Derivatives Seminar27th November 2004
Raphael Drescher
8/8/2019 2 Option Strategies
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Commonly Used Strategies
Risk Reversal
Bull-/ Bearspread
Seagull
Straddle/ Strangle
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Risk Reversal
Go long via RR as alternative to forward
Example (spot 1.3000):
Buy 2m 1.3500 EUR Call/ USD Put Sell 2m 1.2500 EUR Put/ USD Call
Zero premium
-0.1500
-0.1000
-0.0500
0.0000
0.0500
0.1000
0.1500
1.15 1.25 1.35 1.45
EURUSD Spot a t Expiry
P&
L
atexpiry
RR Payout
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ab23
Bull-/ Bearspread (Call-/ Put- Spread)
Go long via Bull (or Call) Spread as alternative to forward or plainvanilla option
Example (spot 1.3000):
Buy 2m 1.3000 EUR Call/ USD Put
Sell 2m 1.3500 EUR Call/ USD Put
Premium: 0.0145 USD per EUR ( plain vanilla would cost 210 USD pips)
-0.0300
-0.0200
-0.0100
0.0000
0.0100
0.0200
0.0300
0.0400
0.0500
1.25 1.30 1.35 1.40
EURUSD Spot at Expiry
P&L
atex
piry
Spread Payout
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ab24
Bull-/ Bear Seagull
Go long via Seagull as alternative to forward or plain vanillaoption
Example (spot 1.3000):
Buy 2m 1.3200 EUR Call/ USD Put
Sell 2m 1.3700 EUR Call/ USD Put
Sell 2m 1.2700 EUR Put/ USD Call
Zero premium
-0.0300
-0.0200
-0.0100
0.0000
0.0100
0.0200
0.0300
0.0400
0.0500
0.0600
1.25 1.27 1.29 1.31 1.33 1.35 1.37 1.39
EURUSD Spot at Expiry
P&L
ate
xpiry
Bull Seagull Payout
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ab25
Straddle
Go long/ short via Straddle
Example (spot 1.3000):
Buy 2m 1.3000 EUR Call/ USD Put Buy 2m 1.3000 EUR Put/ USD Call
Premium 0.0400 USD per EUR
Break-Even 1.2600 and 1.3400
-0.0500
0.0000
0.0500
0.1000
0.1500
1.15 1.25 1.35 1.45
EURUSD Spot at Expiry
P&L
atex
piry
Straddle Payout
8/8/2019 2 Option Strategies
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ab26
Strangle
Go long/ short via Strangle
Example (spot 1.3000):
Buy 2m 1.3200 EUR Call/ USD Put
Buy 2m 1.2800 EUR Put/ USD Call
Premium 0.0230 USD per EUR
Break-Even 1.2570 and 1.3430
-0.0500
0.0000
0.0500
0.1000
1.20 1.25 1.30 1.35 1.40
EURUSD Spot at Expiry
P&L
atexp
iry
Strangle Payout
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