The following are the main points to explain the option intertemporal trading contract:
Overview of strategy: Cross spread trading contract is a combination strategy, including call and put option contracts. It involves two or more option contracts with different strike prices, and these contracts have the same expiration date.
Construction of intertemporal transaction: intertemporal transaction usually consists of two option contracts. One is to buy a call option with a lower exercise price and sell a call option with the same expiration date but a higher exercise price. The other is to buy put options with higher exercise price and sell put options with the same expiration date but lower exercise price.
Risk and return: The risk across the spread is limited, because buying and selling option contracts at the same time can partially hedge the risk. The goal of this strategy is to achieve returns within the fluctuation range of stock or index prices. If the underlying asset price fluctuates between the two exercise prices, investors may gain income.
Target market conditions: Intertemporal spread strategy is usually suitable for investors who expect the underlying asset price to fluctuate within a certain range, but they are not sure about the direction of the rise and fall. If investors expect small price fluctuations, they may face potential loss risks.
Profit and loss: In the cross-warehouse spread strategy, investors' profit comes from the spread between options contracts. If the underlying asset price fluctuates between two exercise prices and the spread increases, investors can make a profit. However, if the underlying asset price exceeds the spread, investors may face losses.
Trading and execution: Cross-spread trading contracts can be conducted on options exchanges. Investors need to open an option trading account, and refer to the option contracts available in the market to implement this strategy.