Options trading strategies | The bougth cone
There are several combination of stocks, futures and others derivative instruments and assets that combined with options trading brings the flexibility and leverage needed in order to build a portfolio that are not usually known by the average investor.
The spreads of volatile nature (cones, cradles, butterflies and condor) usually used in moments in which there does not exist a tendency defined in the evolution of the prices of the underlying assets or it is hoped that sudden changes should exist in the movement of the value but without being able to identify the tendency that they will take.
The investor in this situation cannot bet yes the underlying it will reach a level of prices but perhaps yes be able to think that a change will exist in his volatile nature without importing if as consequence exists an ascending or descending tendency in the price of the underlying.
These strategies what they claim is to capture the benefits making use of these changes of volatile nature without repairing in the sense towards the one that moves himself the value.
The first one that we will describe will be the bought cone, straddle in his English denomination. There is given him this name due to the form of his graph of results that like 4.8 appears in the figure. corresponding to example, it has form of cone.
There exist two forms as the expectations of volatile nature that the investor has, the cone bought in that his estimation is of a future instability of the price of the underlying or a major future volatile nature compared to the implied volatile nature of the market and has form of a cone with the apex in the low part as shows the graph of the example, and on the other hand we have the symmetrical position to this one that would be the cone sold in that the investor does not wait for volatile natures lower than the implied ones and remains represented as a cone with the apex in the top part.
To construct this strategy in the first case we must buy options Call and Putt with the same due date and the same price of exercise, must be this the more brought near at the cost of market of the underlying in the moment to establish the operation (ATM), since we take this one as average price on which it goes to range the quotation of the same one.
The success of this strategy, since we have said, depends on that the value ranges so much that his difference is superior to the premiums paid for the buy of two options, for what it is important at the time of establishing the strategy to evaluate if the premiums of the options are over our expectations of change of the value or for below, or comparing future and implied volatile natures, if it is top we will take this position but otherwise we will not do it.
We are going to show a typical example in which we would use this strategy, for it we are going to make use of the moments of crisis that began in August of 1.99x and that has produced a big instability on the financial markets up to brought in the year 1.99x.
In these situations it is very difficult to bet for a tendency in the prices of the underlying, but what yes seems clear is that they prune to bet already be for the major moderation of the oscillations of the indexes or for movement in any sense.
We believe that in this situation of suspense in the tendencies there is advisable the use of the spreads of volatile nature, in which the estimation that we have to need is if the markets are going to calm down or if on the contrary they are going to suffer even more sudden oscillations.
The evolution of the market in situations how are you is going to depend on punctual news that they affect to the economy of a country more than the evolution of the results of the company or companies that includes the underlying, as what the fundamental and technical analysis as any other system of estimation they will have a secondary value, valuing more punctual events that could affect the international markets, like for example the change of government in a country with influence in the economic world one, the approval of measurements for sane his bank system and impel the economy, devaluations of a currency or change in the types of interest, publication of macroeconomic indexes and another series of events to which the market is very sensitive.
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