5. Bearish Directional Trades
The preceding chapter examined bullish directional trades. We now consider bearish directional trades. We study the most straightforward option trades: (1) long positions in puts, and (2) short positions in calls. The maximum upside of a long put position is the strike price minus the price paid (that is, if the share price were to drop to zero). A long put has a limited downside, equal to the price of the option purchased. On the other hand, short calls have an upside equal to the price of the option sold, but the downside is in theory unlimited.
The sample used in this chapter is constructed in the same way as the sample used in Chapter 4, “Bullish Directional Trades.” We required that options meet two liquidity ...
Get Option Strategies for Earnings Announcements: A Comprehensive, Empirical Analysis now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
