coveredShortStrangle: Calculates Profit and Loss (PnL) per share (or unit of the...

In bullishTrader: Bullish Trading Strategies Through Graphs

Calculates Profit and Loss (PnL) per share (or unit of the underlying) and Breakeven (BE)point at expiration for Covered Short Strangle and draws its graph in the Plots tab.

Description

This strategy amounts to augmenting a covered call by writing an OTM put option with a higher strike price (XL) and the same time to maturity (TTM) as the sold call option (whose strike price is XH) and thereby increasing the income. Breakeven (BE) point of Covered Short Strangle varies depending on the relationship between the stock price, premiums received, and the strikes (Kakushadze & Serur, 2018).

Usage

coveredShortStrangle(
  ST,
  XH,
  XL,
  CXH,
  PXL,
  S0,
  hl = 0,
  hu = 1.6,
  xlab = "Spot Price ($) on Expiration",
  ylab = "Profit / Loss [ PnL ] at Expiration ($)",
  main = "Covered Short Strangle ",
  sub = "bullishTrader / MaheshP Kumar"
)

Arguments

ST	Spot Price at time T.
XH	Higher Strike Price or eXercise price.
XL	Lower Strike Price or eXercise price.
CXH	Call Premium received on shorted higher Strike call.
PXL	Put Premium received on shorted lower Strike Put.
S0	Initial Stock Price
hl	lower bound value for setting lower limit of X axis displaying spot price.
hu	upper bound value for setting upper limit of X axis displaying spot price.
xlab	X axis label.
ylab	Y axis label.
main	Title of the Graph.
sub	Sub title of the Graph.

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 per share Profit and Loss at expiration for Covered Short Strangle and draws its graph in the Plots tab.

Value

returns a profit and loss graph of Covered Short Strangle.

Author(s)

MaheshP Kumar, [e-mail]

References

Cohen, G. (2015). The Bible of Options Strategies (2nd ed.). Pearson Technology Group.
Kakushadze, Z., & Serur, J. A. (2018, August 17). 151 Trading Strategies. Palgrave Macmillan. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3247865

Examples

coveredShortStrangle(17,21,12,1.44,3.56,15.84)
coveredShortStrangle(50,55,45,4,11,48,hl=0.7,hu=1.2)
coveredShortStrangle(1000,1010,990,10,24,990,hl=0.97,hu=1.02)

bullishTrader documentation built on Oct. 14, 2022, 9:06 a.m.