Construction of reverse ratio option portfolio
Inverse proportional option portfolio refers to the analysis of buying n hands of call (put) options and selling m hands (m table is the inverse proportional call option portfolio.
Taking call options as an example, we can understand this strategy in this way, that is, investors are optimistic about the market outlook, so they buy N call options to reduce the cost of premium and sell M(M) at the same time. The core of this strategy is to sell high-priced options and buy low-priced options. The ratio of selling m to buying n usually follows the principle of zero cost, that is, the premium income of selling options is greater than or equal to the premium paid by buying options, so that the risk is zero when the underlying asset price falls.
The picture shows the profit and loss of the inverse proportional option portfolio.
As can be seen from the above figure, for the reverse proportional call (put) option portfolio, when the underlying price goes down (up), investors can get a net commission income, while when the underlying price goes up (down), the income will continue to increase because the number of bulls in the call (down) option is greater than the number of bears. Only when the target price is consolidated at the high (low) execution price will there be a loss.
Application of Inverse Ratio Option Portfolio
Inverse proportional option portfolio has the profit and loss characteristics of limited risk and huge potential income, which is defensive in itself. In theory, there is no need for too much risk control intervention. After the portfolio is built, it will wait for the target price to change. When there is some income, it may be the best way to make a profit, and close the position. However, when risks appear, on the one hand, you can choose to ignore them (because the risks are limited); On the other hand, taking the call option as an example, in order to avoid the biggest risk, when the underlying price rises to the high strike price, the short position of the call option can be extended, the safety margin can be further expanded, and the profit probability can be increased.
Obviously, under the background that the underlying assets are expected to rise (fall) sharply, it is suitable to construct reverse call (fall) ratio option portfolios respectively. When the expected price fluctuates greatly, but the direction is uncertain, we can try to construct a two-way reverse proportional portfolio strategy, which involves constructing a set of reverse proportional call option portfolio and reverse proportional put option portfolio respectively.
Let's take the soybean meal option proposed by Dashang as an example. When the futures price of soybean meal is 3,000 yuan/ton, investors sell the 1 call option with the exercise price of 3,000 yuan/ton and get a premium of 125 yuan/ton. Buy two call options with exercise price of 3200 yuan/ton at the same time, and get a premium of 18. Sell the 1 put option with the exercise price of 3000 yuan/ton, and get a premium of 125 yuan/ton. At the same time, buy two put options with the exercise price of 2800 yuan/ton, and pay the premium of 90 yuan/ton. All the above options expire in September, thus constructing a two-way reverse proportional option portfolio.
As can be seen from the following figure, no matter whether the price of soybean meal rises or falls, as long as the increase is large enough, you can get larger profits, and the maximum risk is limited to 140 yuan/ton. Even if the prices are combined, the profit of 60 yuan/ton can be obtained at most. In addition, the breakeven points in the following figure are 2660 yuan/ton, 2940 yuan/ton, 3060 yuan/ton and 3340 yuan/ton respectively, which is also improved compared with the one-way proportional combination. It can be seen that the bidirectional inverse ratio combination is an effective extension of the unidirectional inverse ratio combination.
The picture shows the profit and loss of two-way reverse proportional option portfolio.
It is worth mentioning that the inverse ratio option portfolio strategy can also make calendar changes, that is, the duration of buying and selling options is different, short selling long-term options and buying short-term options. Because the long-term option premium is high and the short-term option premium is low, the calendar change improves the long-short ratio, increases the number of option bulls, and invisibly increases profitability. Of course, this also makes the portfolio fall into the risk of time hedging mismatch, but generally speaking, such a change is
In a word, the inverse proportional option portfolio is an imaginative trading strategy. Only by thinking hard and accumulating practical experience can we effectively improve the trading performance.