I am a little confused about long calender spread, short calender spread, short risk reversal and long risk reversal.
it will be very helpful if someone can explain me these 4 strategies.
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Example: Let’s say an investor believes that a stock will remain relatively stable over the next few months, but expects an increase in volatility in the long term. The investor could buy a call option with a strike price of $50 that expires in six months, and simultaneously sell a call option with the same strike price that expires in one month.
2. Short Calendar Spread: A short calendar spread is the opposite of a long calendar spread. This options strategy involves selling a longer-term option and buying a shorter-term option with the same strike price. The hope is that the shorter-term option will expire worthless, allowing the investor to keep the premium received from selling it, while the longer-term option will decrease in value as time passes.
Example: Continuing with the previous example, let’s say an investor believes that the same stock will remain relatively stable over the next month, but expects a decrease in volatility over the long term. The investor could sell a call option with a strike price of $50 that expires in six months, and simultaneously buy a call option with the same strike price that expires in one month.
3. Short Risk Reversal: A short risk reversal is an options strategy that involves selling a call option and buying a put option at the same strike price. The goal of this strategy is to profit from a decrease in the underlying asset’s price, while limiting potential losses in case the price increases. This strategy is considered a “short” position because the investor is selling the call option.
Example: Let’s say an investor believes that a stock is currently overvalued and expects its price to decrease in the near future. The investor could sell a call option with a strike price of $50 and simultaneously buy a put option with the same strike price.
4. Long Risk Reversal: A long risk reversal is the opposite of a short risk reversal. This options strategy involves buying a call option and selling a put option at the same strike price. The goal of this strategy is to profit from an increase in the underlying asset’s price, while limiting potential losses in case the price decreases. This strategy is considered a “long” position because the investor is buying the call option.
Example: Let’s say an investor believes that a stock is currently undervalued and expects its price to increase in the near future. The investor could buy a call option with a strike price of $50 and simultaneously sell a put option with the same strike price.