Bitcoin Exchange CEX.IO

Strategy Number 2 – Short Call Option

 

Market dATA
DJ Index 100 points
Prices
Call 100 $1,000

Strategy name:

Short Call option

 

Recommended use of strategy

Expectation of decline in DJ Index

 

Strategy components

Writing a Call option

Example: Writing Call 100 at a price of $1,000

 

Expenses / Income from building the strategy (at start date)

Income of $1,000

 

 

Strategy graph:

graph 

 

Auxiliary table for building the profit line

DJ Index
(Horizontal axis)
(Fixed expenses)/ fixed income Variable expenses Variable income (Call contribution) Total profit / (loss) 
(Vertical axis)
2+3+4
1 2 3 4 5
60 $1,000 $1,000
70 $1,000 $1,000
80 $1,000 $1,000
90 $1,000 $1,000
100 $1,000 $1,000
110 $1,000 ($1,000) $0
120 $1,000 ($2,000) ($1,000)
130 $1,000 ($3,000) ($2,000)
140 $1,000 ($4,000) ($3,000)
150 $1,000 ($5,000) ($4,000)
 
Strategy analysis:

Source of loss           

The loss arising from writing the Call option. As the DJ Index increases, so does the loss increase.

 

Source of profit

The profit from building the strategy (writing the option) – $1,000.

 

Break-even point

The point where the losses from the option equals the income from writing it. This occurs at 110 points.