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Derivatives Exam 2
Key notes
| Term | Definition |
|---|---|
| Upside BE for long straddle | K + put premium + call premium |
| Downside BE for long straddle | K - put premium - call premium |
| Downside BE for long strangle | Put K - put premium - call premium |
| Upside BE for long strangle | Call K + put premium + put premium |
| Max possible loss for straddle | Premium cost |
| Max possible loss for strangle | Premium cost |
| Long Butterfly Construction | Buy 1 Put at low k; Sell 1 Call and Sell 1 Put at mid k; Buy 1 Call at upper k |
| Short Butterfly Construction | Sell 1 Put at low k; Buy 1 Call and Buy 1 Call at mid k; Sell 1 Call at upper k |
| Long Butterfly Simplified | Sell a Straddle and Buy a Strangle |
| Short Butterfly Simplified | Buy a Straddle and Sell a Strangle |