The Return/Risk Characteristics of Option’s Combination Strategies and the Timing of Their Applications: Theory and Empirical Tests

• Main Authors: TSAI, HSIU-YI, 蔡秀怡
• Other Authors: HSU, HSI-NAN
• Format: Others
• Language: zh-TW
• Published: 2018
• Online Access: http://ndltd.ncl.edu.tw/handle/833jrs

博士 === 國立高雄科技大學 === 財務金融學院博士班 === 107 === To understand the return distributions of optioned portfolios is important because the return distribution of the underlying asset and their return/risk characteristics have been altered by the options. Thus, investors are able to precisely tailor the return/risk features to fit their preferences. The practical application of option’s combination strategies is that the asset price is expected to have a huge change but uncertain directions in the future due to a specific event (e.g., the test of a new medicine, uncertain outcome of a presidential election, a threaten of nuclear war from a crazy leader, etc.), the option traders can employ straddle or strangle strategies. If the expectation is correct, he (she) will earn a huge profit; on the other hand, if the event is expected to have a small effect, the traders can employ selling straddle or strangle strategies. If the expectation is correct, he (she) can earn the premia of both legs. The popularity of the combination strategies in the market is eminent. However, the investigation of their return/risk characteristcs is relatively scarce. Thus, this disertation is aimed to fill this gap by theoretically analyzing the probabilities of profit/loss, return/risk characteristcs and empirically being tested by using the TXO data. The results reveal that the most important factor of influencing the holding-up-to-expiration returns and profitable probabilities for combination strategies is the magnitude of change in underlying asset prices. Interestingly, the more market price change, the more likely that the profitable probabilities for strangle strategies are larger than those for straddle strategies. Moreover, by carefully choosing the optimal strike prices traders can make their expected returns maximum. However, it is worthwhile to mention that the volatilities of the combination strategies are larger than that of the underlying asset.