Thị trường quyền chọn tiền tệ và các chiến lược straddle strangle, bull spread,bear spread, đề thi đáp án môn kinh doanh ngoại hối Đại học Mở 2016

MINISTRY OF EDUCATION AND TRAINING

HO CHI MINH CITY OPEN UNIVERSITY
SCHOOL OF ADVANCED STUDY FACULTY
09/2016

GROUP ASSIGNMENT

FOREX TRADING SUBJECT
GROUP ONE
Lecturer: MBA. Pham Thu Huong
0


Content
A. Straddle ........................................................................................................................................... 3
Long straddle................................................................................................................................. 3

I.
1.

Definition: .................................................................................................................................... 3

2.

Employment ................................................................................................................................. 3

3.

Payoff diagram and general formula for calculating profit:......................................................... 4

4.

Example: ...................................................................................................................................... 5

II.

Short Straddle: .............................................................................................................................. 6

1.

Definition: .................................................................................................................................... 6

2.

Employment: ................................................................................................................................ 6

3.

Payoff diagram and general formula for calculating profit: ......................................................... 7

4.

Example: ...................................................................................................................................... 8

B. Strangle. ........................................................................................................................................ 10
Long strangle: ............................................................................................................................. 10

I.
1.

Definition: .................................................................................................................................. 11

2.

Employment: ............................................................................................................................. 11

3.

Payoff diagram and general formula for calculating profit: ....................................................... 11

4.

Example: .................................................................................................................................... 13

II.

Short strangle: ............................................................................................................................. 14

1.

Definition: .................................................................................................................................. 14

2.

Employment: .............................................................................................................................. 14

3.

Payoff diagram and general formula for calculating profit: ....................................................... 15

4.

Example: .................................................................................................................................... 16

C. Bull spread ................................................................................................................................... 17
Bull call Spread: .......................................................................................................................... 18

I.
1.

Definition: .................................................................................................................................. 18

2.

Employment: .............................................................................................................................. 18

3.

Pay off diagram and general formula for calculating profit: ...................................................... 18

4.

Example: .................................................................................................................................... 20

II.
1.

Bull Put Spread: .......................................................................................................................... 21
Definition: .................................................................................................................................. 21
1

2.

Employment: .............................................................................................................................. 21

3.

Payoff diagram and general formula for calculating profit: ....................................................... 21

4.

Example: .................................................................................................................................... 23

D. Bear spread: ................................................................................................................................. 24
Bear Call Spread:........................................................................................................................ 24

I.
1.

Definition: .................................................................................................................................. 24

2.

Employment: .............................................................................................................................. 24

3.

Payoff diagram and general formula for calculating profit: ....................................................... 25

4.

Example: .................................................................................................................................... 26

II.

Bear Put Spread: ......................................................................................................................... 27

1.

Definition: .................................................................................................................................. 27

2.

Employment: .............................................................................................................................. 27

3.

Payoff diagram and general formula for calculating profit: ....................................................... 28

4.

Example: .................................................................................................................................... 29

KEY WORDS:.......................................................................................................................................... 30
References:................................................................................................................................................ 32

2

A. Straddle
A straddle is an options strategy in which the investor holds a position in both
a call and put with the same strike price and expiration date, paying both
premiums. This strategy allows the investor to make a profit regardless of
whether the exchange rate goes up or down.
I. Long straddle
1. Definition:
Long straddle options are unlimited profit, limited risk options trading
strategies that are used when the options trader thinks that the underlying
currency will experience significant volatility in the near term.
2. Employment
 To creating a long straddle position is to purchase one call option and one
put option. Both options must have the same strike price and expiration
date.
 Long straddle positions have unlimited profit and limited risk. If the price
of the underlying currency continues to increase, the potential profit is
unlimited. If the price of the underlying currency goes to zero, the profit
would be the strike price less the premiums paid for the options. In either
case, the maximum risk is the total cost to enter the position, which is the
price of the call option plus the price of the put option.
 Long straddle used by investor when they expect the fluctuation of the
currency in any case in the future.

3


3. Payoff diagram and general formula for calculating profit:

We have: ST: the spot rate of underlying currency.
F1: the premium paid of long call option contract.

F2: the premium paid of long put option contract.
X: the strike price of long call and long put contract.
Total fee have to pay when the investor take long call and long put straddle
is: F1+F2
Table 1: Payoff that investor receive when expiration coming in each
case:
Spot rate(ST) Payoff from Payoff from Total
long call
long put

Total profit

ST
0

X-ST

X-ST

X-ST-(F1+F2)

ST=X

0

0

0

-(F1+F2)

ST>X

ST-X

0

ST-X

ST-X-(F1+F2)

The formula for calculating profit is given below:
 Maximum Profit = Unlimited
4


 Profit Achieved When Price of Underlying > Strike Price of Long Call +
Net Premium Paid OR Price of Underlying < Strike Price of Long Put Net Premium Paid
 Profit = Price of Underlying - Strike Price of Long Call - Net Premium
Paid OR Strike Price of Long Put - Price of Underlying - Net Premium
Paid
The formula for calculating maximum loss is given below:
 Max Loss = Net Premium Paid + Commissions Paid
 Max Loss Occurs When Price of Underlying = Strike Price of Long
Call/Put
There are 2 break-even points for the long straddle position. The breakeven
points can be calculated using the following formulae.
 Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
 Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

4. Example:
The A sign 2 contract:
 Have a long call option contract with Bank A to buy USD paid by VND
with 100.000 USD with the exchange rate USD/VND 22.330D, 1
month expiration, premium paid: 700/USD
 Have a long put option contract with Bank B to buy USD paid by VND
with 100.000 USD with the exchange rate USD/VND 22.330D, 1
month expiration, premium paid: 500/USD.
Solution:
We use the long straddle strategy.
Breakeven points:
ST1= X – (F1 + F2) = 22,330 - (700 + 500) = 21,130VND
ST2= X + (F1 + F2)= 22,330 + (700+500)= 23,530 VND.
Total cost have to pay when the investor take long straddle is:
(700+500)*100,000 =120,000,000 VND.

5


Exchange
rate

Payoff from Payoff from Total
long call
long put

Total profit

19,930
21,130

22,330
23,530
24,730

0
0
0
120,000,000
240,000,000

120,000,000
0
-120,000,000
0
120,000,000

240,000,000
120,000,000
0
0
0

240,000,000
120,000,000
0
120,000,000
240,000,000

Payoff diagram:

II. Short Straddle:
1. Definition:
Short straddles are limited profit, unlimited risk options trading strategies that
are used when the options trader thinks that the underlying currency will
experience little volatility in the near term.
2. Employment:
 To create a short straddle position is to purchase one call option and one
put option. Both options must have the same strike price and expiration
date.

6


 Short straddle positions have limited profit and unlimited risk. If the price
of the underlying currency continues to increase, the potential profit is
limited. If the price of the underlying currency goes to zero, the profit
would be the strike price less the premiums paid for the options. In either
case, the maximum risk is the total cost to enter the position, which is the
price of the call option plus the price of the put option.
 Short straddle used by investor when they expect the slight fluctuation of
the currency in any case in the future.
3. Payoff diagram and general formula for calculating profit:

We have :

ST: the spot rate of underlying currency.
F1: the premium paid of long call option contract.
F2: the premium paid of long put option contract.
X: the strike price of long call and long put contract.

Total fee that the seller get from short call and short put is F1+F2

Table 2: Payoff that seller receive when expiration coming in each case:
7


Spot rate
(ST)

Payoff from
short call

Payoff from
short put

Total

Total profit

ST< X

0

- (X - ST)

- (X - ST)

- (X - ST) + (F1+F2)

ST= X

0

0

0

(F1 +F2)

ST> X

-(ST - X)

0

-(ST - X)

-(ST - X) + (F1 +F2)

The formula for calculating profit is given below:
 Profit = Net Premium Received - Commissions Paid
 Max Profit Achieved When Price of Underlying = Strike Price of Short
Call/Put
The formula for calculating loss is given below:
 Maximum Loss = Unlimited
 Loss Occurs When Price of Underlying > Strike Price of Short Call + Net
Premium Received OR Price of Underlying < Strike Price of Short Put Net Premium Received
 Loss = Price of Underlying - Strike Price of Short Call - Net Premium
Received OR Strike Price of Short Put - Price of Underlying - Net
Premium Received + Commissions Paid

There are 2 break-even points for the short straddle position. The
breakeven points can be calculated using the following formulae.
 Upper Breakeven Point = Strike Price of Short Call + Net Premium
Received
 Lower Breakeven Point = Strike Price of Short Put - Net Premium
Received
4. Example:
The A sign 2 contract:
 Have a short call option contract with Bank A to buy USD paid by VND
with 100.000 USD with the exchange rate USD/VND 22.330D, 1
month expiration, premium paid: 700/USD.
8


 Have a short put option contract with Bank B to buy USD paid by VND
with 100.000 USD with the exchange rate USD/VND 22.330D, 1
month expiration, premium paid: 500/USD.
Solution:
We use the long straddle strategy.
Breakeven points:
ST1= X – (F1 + F2) = 22,330 - (700 + 500) = 21,130VND
ST2= X + (F1 + F2)= 22,330 + (700+500)= 23,530 VND.
Total cost have to pay when the investor take long straddle is:
(700+500)*100,000 =120,000,000 VND.
Exchange
rate
19,930
21,130
22,330
23,530

24,730

Payoff from
long call
0
0
0
-120,000,000
- 240,000,000

Payoff from
long put
-240,000,000
-120,000,000
0
0
0

Payoff diagram:

9

Total

Total profit

-240,000,000
-120,000,000
0
-120,000,000

-240,000,000

-120,000,000
0
120,000,000
0
-120,000,000


Note: Base on the situation of currency market, we can choose the
appropriate strategy. For long straddle option, investor get an unlimited
profit and for short straddle option, investor get a maximum profit from
net premiums.

B. Strangle.
Strangle option is an options strategy where the investor holds a position in
both a call and put with different strike prices but with the same maturity and
underlying currency. This option strategy is profitable only if there are large
movements in the price of the underlying currency. This is a good strategy if
investor think there will be a large price movement in the near future but are
unsure of which way that price movement will be.
I. Long strangle:
A strangle is an options strategy where the investor holds a position in both a
call and put with different strike prices but with the same maturity and
underlying currency. This option strategy is profitable only if there are large
movements in the price of the underlying currency. This is a good strategy if
you think there will be a large price movement in the near future but are unsure
of which way that price movement will be.
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1. Definition:
Long strangle option is a strategy in which the investor hold both long call
and long put. This strategy is illustrated just the same as long straddle
mentioned above, but long strangle has the strike price of put option 1
different from strike price of call option 2 (in general, the strike price of long
put option is lower than the strike price of long call option).
2. Employment:
 To creating a long strangle position is to purchase one call option and one
put option. Both options have the different strike price and the same
expiration date.
 When long strangle option approach to the expiration date, the more price
extend toward 2 side the more profit we get. If price is inside the range of
X1 and X2, the loss we get is two premium that we paid and if price is
outside the range of X1 and X2 we will get profit. In addition, with the long
strangle we will get more loss than long straddle.
 The strategy exercised when they expect the fluctuation of the currency in
a short term in the future.
3. Payoff diagram and general formula for calculating profit:

We have:

ST: the spot rate of underlying currency.
F1: the premium paid of long call option contract.
11


F2: the premium paid of long put option contract.
X1: the strike price of long put contract.
X2 : the strike price of long call contract.

Total fee have to pay when the investor take long call and long put strangle
is: F1+F2
Table 3: Payoff that investor receive when expiration coming in each
case:
Spot rate
(ST)

Payoff from
long call

Payoff from
long put

Total

Total profit

ST< X1

0

X1 - ST

X1 - ST

(X1 - ST) - (F1+F2)

X1≤ST≤X2

0

0

0

-(F1 +F2)

ST> X2

ST - X2

0

ST - X2

(ST - X2) - (F1 +F2)

The formula for calculating profit/loss is given below:
 Maximum Profit = Unlimited
 Profit Achieved When Price of Underlying > Strike Price of Long Call +
Net Premium Paid OR Price of Underlying < Strike Price of Long Put Net Premium Paid
 Profit = Price of Underlying - Strike Price of Long Call - Net Premium
Paid OR Strike Price of Long Put - Price of Underlying - Net Premium
Paid
The formula for calculating maximum loss is given below:
 Max Loss = Net Premium Paid + Commissions Paid
 Max Loss Occurs When Price of Underlying is in between Strike Price of
Long Call and Strike Price of Long Put
There are 2 break-even points for the long strangle position. The breakeven
points can be calculated using the following formula:

 Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
 Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid.
12


4. Example:
The A sign 2 contract:
 Have a long call option contract with Bank A to buy USD paid by
VND with 100.000 USD with the exchange rate USD/VND 22,330D,
1 month expiration, premium paid: 700/USD
 Have a long put option contract with Bank B to buy USD paid by
VND with 100.000 USD with the exchange rate USD/VND 22,250
VND, 1 month expiration, premium paid: 500/USD.
Solution:
We use the long strangle strategy.
Breakeven points:
ST1= X1 – (F1 + F2) = 22,250 - (700 + 500) = 21,050VND
ST2= X2 + (F1 + F2)= 22,330 + (700+500)= 23,530 VND.
Total cost have to pay when the investor take long straddle is:
(700+500)*100,000 =120,000,000 VND.
Exchange
rate
19,850
21,050
22,250
22,330
23,530
24,730

Payoff from

long call
0
0
0
0
120,000,000
240,000,000

Payoff from
long put
240,000,000
120,000,000
0
0
0
0

Payoff diagram:

13

Total

Total profit

240,000,000
120,000,000
0
0
120,000,000

240,000,000

120,000,000
0
-120,000,00
-120,000,000
0
120,000,000


II. Short strangle:
1. Definition:
An option strangle is a strategy where the investor holds a position in both
selling a call and selling a put with the same maturity and underlying currency,
but with the different strike price, the call strike price is above the put strike
price. Typically both options are out-of-the-money when the strategy is
initiated.
The short strangle option strategy is a limited profit, unlimited risk options
trading strategy.
2. Employment:
The short strangle is considered a neutral position - neutral because the
strangle seller does not have a definite bullish or bearish outlook for the
underlying currency. Instead the seller expects decreased volatility , and for
the underlying currency to stabilize between the two strike prices by
expiration. As well, the holder wants a decrease in option implied volatility
that could enhance profitability before expiration, perhaps with even more of
a move in the underlying currency than expected.

14

3. Payoff diagram and general formula for calculating profit:

We have:

ST: the spot rate of underlying currency.
F1: the premium paid of short call option contract.
F2: the premium paid of short put option contract.
X1: the strike price of short put contract.
X2 : the strike price of short cal contract.
Total fee that the seller get from short call and short put is F1+F2
Table 4: Payoff that investor receive when expiration coming in each
case:
Spot rate(ST)

Payoff from Payoff from Total
short call
short put

Total profit

ST
0

-(X1-ST)

-(X1-ST)

-(X1-ST)+(F1+F2)

X1≤ST≤X2

0

0

0

F1+F2

ST>X2

-(ST-X2)

0

-(ST-X2)

-(ST-X2)+(F1+F2)

The formula for calculating maximum profit is given below:
 Max Profit = Net Premium Received - Commissions Paid
 Max Profit Achieved When Price of Underlying = Strike Price of Short
Call/Put
15


The formula for calculating loss is given below:
 Maximum Loss = Unlimited

 Loss Occurs When Price of Underlying > Strike Price of Short Call + Net
Premium Received OR Price of Underlying < Strike Price of Short Put Net Premium Received
 Loss = Price of Underlying - Strike Price of Short Call - Net Premium
Received OR Strike Price of Short Put - Price of Underlying - Net Premium
Received + Commissions Paid
There are 2 break-even points for the short straddle position. The breakeven
points can be calculated using the following formulae.
 Upper Breakeven Point = Strike Price of Short Call + Net Premium
Received
 Lower Breakeven Point = Strike Price of Short Put - Net Premium
Received
4. Example:
The A sign 2 contract:
 Have a short call option contract with Bank A to buy USD paid by
VND with 100.000 USD with the exchange rate USD/VND 22,330D,
1 month expiration, premium paid: 700/USD
 Have a short put option contract with Bank B to buy USD paid by
VND with 100.000 USD with the exchange rate USD/VND 22,250
VND, 1 month expiration, premium paid: 500/USD.
Solution:
We use the short strangle strategy.
Breakeven points:
ST1= X1– (F1 + F2) = 22,250 - (700 + 500) = 21,050VND
ST2= X2 + (F1 + F2)= 22,330 + (700+500)= 23,530 VND.
Total cost have to pay when the investor take long straddle is:
(700+500)*100,000 =120,000,000 VND.

16

Exchange
rate
19,850
21,050
22,250
22,330
23,530
24,730

Payoff from
short call
0
0
0
0
-120,000,000
-240,000,000

Payoff from
short put
-240,000,000
-120,000,000
0
0
0
0

Total

Total profit

-240,000,000
-120,000,000
0
0
-120,000,000
-240,000,000

-120,000,000
0
120,000,00
120,000,000
0
-120,000,000

Payoff diagram:

C. Bull spread
A bull spread is an option strategy in which maximum profit is attained if the
underlying currency rises in price. Either calls or puts can be used. The lower
strike price is purchased and the higher strike price is sold. The options have
the same expiration date.

17


I. Bull call Spread
1. Definition:
A bull call spread is an options strategy that involves purchasing call options
at a specific strike price while also selling the same number of calls of the

same currency and expiration date but at a higher strike. A bull call spread is
used when a moderate rise in the price of the underlying currency is expected.
Bull call spreads are a type of vertical spread. A bull call spread may be
referred to as a long call vertical spread. Vertical spreads involve
simultaneously purchasing and writing an equal number of options on the
same underlying currency, same options class and same expiration date.
However, the strike prices are different.
2. Employment:
Bull call spread is made by purchasing a call option with the lower Strike price
X1 and sell a call option with the higher strike price X2. Two options have the
same quantity but the different Strike price. Because of the decreasing of
premium when strike price increase, so that premium of the selling option
always lower than the purchasing option.
This can be put the investor in a safety range.
There are 3 kind of “Bull call spread”:
 Buy out of the money, sell further out of the money call option.
 Buy in the money/ at the money and sell in the money call option.
 Buy further in the money call option and sell in the money call option.
3. Pay off diagram and general formula for calculating profit:

18


We have:

ST: the spot rate of underlying currency.
F1: the premium paid of long call option contract.
F2: the premium paid of short call option contract.
X1: the strike price of long call contract.
X2: the strike price of short call contract.

Table 5: Payoff that the options trader receive when expiration coming
in each case:
Spot rate

Payoff from
long put

Payoff from Total
short put

Total profit

ST ≤ X2

ST-X1-F1

X2 – S2+F2

X2 –X1 – (F1- F2)

ST-X1-F1

X2
ST-X1-F1

F2

ST–X1 – (F1- F2)

ST-X1-F1

ST ≥ X1

-F1

F2

-(F1-F2)

-F1

ST

So that, We can identify breakeven point throughout.
ST – X1 – (F1-F2) = 0 OR ST* - X1 = F1 – F2
19


Investor will lost if the difference between spot price and strike price (S TX1) cannot cover the initial cost of the strategy (F1-F2)
Limited minimum profit is the difference between two strike price (X 2-X1)
minus the initial cost of the option (F1-F2).
4. Example:
Investor forecast Dollar will increase against Viet Nam Dong. So that, they
bought a call option (1 USD /contract) with the strike price 20.000VND/USD,
premium 100 VND and sold a call option (1 USD/contract ) with strike price
21.000 VND/USD, premium 60 VND, expiration date : 2 months at the same
time. Calculate profit with these spot price below
Spot rate

Profit from long Profit from
Total profit
call option
short call option

19.500

-100

60

-40

20.000

-100

60

-40

20.040

-60

60

0

21.000

900

60

960

21.500

1400

-440

960

Payoff diagram:

20


II. Bull Put Spread:
1. Definition:
A bull put spread is an options strategy that is constructed by purchasing one
put option while simultaneously selling another put option with a higher
strike price (with the same expiration date). The goal of this strategy is
realized when the price of the underlying stays above the higher strike price,
which causes the short option to expire worthless, resulting in the trader
keeping the premium.
2. Employment:

This strategy is used when the investor expects a moderate rise in the price
of the underlying currency.
This strategy entails precisely limited risk and reward potential.
3. Payoff diagram and general formula for calculating profit:

21


We have:

ST: the spot rate of underlying currency.
F1: the premium paid of long put option contract.
F2: the premium paid of short put option contract.
X1: the strike price of long put contract.
X2: the strike price of short put contract.

Table 6: Payoff that the options trader receive when expiration coming
in each case:
Spot rate

Payoff from
long put

Payoff from
short put

Total

Total profit

ST ≥ X2

0

0

0

F2 - F1

X1
0

ST - X2

ST - X2

ST - X2 + (F2 F1)

ST ≤ X1

X1 - ST

ST - X2

X1 - X2

X1 - X2 + (F2 F1)

ST

When profit = 0, we have break even rate equation:
ST* - X2 + (F2 - F1) = 0 or X2 - ST* = F2 - F1
22


4. Example:
An Investor predicts the dollar will increase against Viet Nam Dong. So that,
they bought a put option (1 USD /contract) with the strike price
20.000VND/USD, premium 60 VND and sold a put option (1 USD/contract
) with strike price 21.000 VND/USD, premium 100 VND, expiration date :
2 months at the same time. Calculate profit with these spot price below
The net initial profit 1 USD makes : 100 - 60 = 40 VND

Exchange rate

Profit from long
put option

Profit from short
put option

Profit 100 USD make

19,000

940

-1900

-960

20,000

-60

-900

-960

20,500

-60

-400

-460

21,000

-60

100

40

21,500

-60

100

40

We have the breakeven point: X2 - ST* = F2 - F1
=> ST*=X2 + F1 - F2 = 21.000 + 60 - 100 = 20,840 VND

23


D. Bear spread:
A bear spread is an option strategy seeking maximum profit when the price
of the underlying currency declines. The strategy involves the simultaneous
purchase and sale of options; puts or calls can be used. A higher strike price
is purchased and a lower strike price is sold. The options should have the
same expiration date.
I. Bear Call Spread:
1. Definition:
A bear call spread is a type of vertical spread. It contains two calls with the
same expiration but different strikes. The strike price of the short call is below
the strike of the long call, which means this strategy will always generate a
net cash inflow (net credit) at the outset.
The short call's main purpose is to generate income, whereas the long call
simply helps limit the upside risk.
2. Employment:
The bear call spread option trading strategy is employed when the options
trader thinks that the price of the underlying currency will go down
moderately in the near term.

24