R/10_bearPutSpreadExpirationValueVT.R

In bearishTrader: Trading Strategies for Bearish Outlook

#'Calculates Value/Payoff (VT) at expiration per share or unit of the underlying for Bear Put Spread and draws its graph in the Plots tab.
#'@description
#'This is a vertical spread consisting of a long position in a put option (close to at-the-)  with a strike price XH, and a short position in an put option (out-of-the-money) with a lower strike price XL. This is a net debit trade. The outlook of the trader (investor) is bearish and trader profits if the stock price falls (Kakushadze & Serur, 2018).
#'@details
#'According to conceptual details given by Cohen (2015), and a closed-form solution provided by Kakushadze and Serur (2018), this method is developed, and the given examples are created, to compute Value/Payoff (VT) at expiration per share or unit of the underlying for Bear Put Spread and draw its graph in the Plots tab. EXAMPLE, Buy HypoPharma December 17 put at $4.00  and Write HypoPharma December 14 put at $3.00. Suppose HypoMart stock is trading at $17. An investor creates a bear put spread by buying the HypoMart May 17 put at $4 and selling the HypoMart May 14 put at $3, at a net debit (net cash outflow) of $1. If the stock price is trading at $17 or higher, both puts will expire worthless and the investor will lose the net premium paid for the spread. The graph gets displayed in Plots tab.
#'@param ST Spot Price at time T.
#'@param XH higher Strike Price or eXercise price.
#'@param XL lower Strike Price or eXercise price.
#'@param PH Put Premium on higher Strike.
#'@param PL Put Premium on lower Strike.
#'@param hl lower bound value for setting lower-limit of x-axis displaying spot price.
#'@param hu upper bound value for setting upper-limit of x-axis displaying spot price.
#'@param xlab X-axis label.
#'@param ylab Y-axis label.
#'@param main Title of the Graph.
#'@return Returns a graph of the strategy.
#'@importFrom graphics abline
#'@importFrom graphics text
#'@importFrom graphics lines
#'@importFrom graphics par
#'@importFrom graphics plot
#'@author MaheshP Kumar, \email{maheshparamjitkumar@@gmail.com}
#'@references
#'Cohen, G. (2015). The Bible of Options Strategies (2nd ed.). Pearson Technology Group. https://bookshelf.vitalsource.com/books/9780133964448\cr
#'Kakushadze, Z., & Serur, J. A. (2018, August 17). 151 Trading Strategies. Palgrave Macmillan. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3247865
#'@examples
#'bearPutSpreadExpirationValueVT(17,17,14,4,3)
#'bearPutSpreadExpirationValueVT(40,40,35,1.85,0.50,hl=0.6,hu=1.2)
#'bearPutSpreadExpirationValueVT(500,500,495,9,7,hl=0.95,hu=1.02)
#'@export
bearPutSpreadExpirationValueVT<-function (ST,XH,XL,PH,PL,hl=0,hu=1.5,xlab="Spot Price ($) at Expiration",ylab=" Value / Payoff [ VT ] at Expiration ($)",main=" Bear Spread using Puts [ VT ]"){
  myData <- data.frame (spot = c((ST*hl):(ST*hu)))
  oldpar <- par(no.readonly = TRUE)
  on.exit(par(oldpar))
  myData$Val <- (pmax(0,(XH-myData$spot))-pmax(0,(XL-myData$spot)))
  myData$Val = round(myData$Val, digits=2)
  myData$spot = round(myData$spot, digits=2)
  par(mfrow = c(1,1))
  plot(myData$spot, myData$Val, pch=21, bg="cyan1",col="cyan1",cex=1.1, xlab = xlab, ylab = ylab, col.lab="blue",main = main,xlim=c(ST*hl,ST*hu), ylim=c(-1,(XH-XL+1)))
  text (myData$spot, myData$Val, labels = as.character(myData$Val), adj = -1,
        pos = NULL, offset = 0.5, vfont = NULL,
        cex = 0.7, col = "red", font = NULL )
  text(XL-2,0.5, labels=as.character("Value[VT]@Expiration"), adj = 1,col="darkblue")
  text(XL-2,1.50, labels=as.character("Bearish OUTLOOK"), adj = 1,col = "brown")
  abline(h = 0,col = "gray")
  abline(v = XH,col = "gray", lty=5,lwd=2)
  abline(v = XL,col = "gray",lty=5,lwd=2)
  legend("topright", legend = "VT ",text.col ="snow",  bg ="midnightblue", pch=16, col="cyan1",cex = 1.1)
  lines(myData$spot,myData$Val,col = "blue")
}