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Probability of Exercise of Option

100%

Stolorz B.

Folia Oeconomica Stetinensia

2007

vol. 6

issue 1

1-14

To estimate the risk the investors take when investing their money in stocks or stock options one must study if the option is exercised or not. From the point of view of a call option writer, especially those uncovered, one should study the probability of the exercise of option by a holder. The method presented in the paper enables to estimate risk connected with investment in options. In the assessment of risk that is born when investing money in stocks or options it is interesting whether the option will be exercised or not. From the writers' point of view, particularly those without coverage, it could be necessary to analyse probability of the exercise of options by buyers. The described method allows to assess at any time of call option duration whether the investor can be certain of the result of their investment. It can be applied also for the option strategies. In the paper the author has attempted to estimate the risk of call option and to estimate the probability of profit achievement in the case of long strangle option application. Investors using option strategies are able to do preliminary analysis of options and to minimize risk of their investment through choosing a proper date and price of exercise.

Comparison of the results of long and short straddle option strategies on the WIG20 during 2005–2015

88%

Flotyński M.

FINANSE Czasopismo Komitetu Nauk o Finansach PAN

2017

issue 1(10)

167-193

There is a huge variety of derivatives on the Polish financial market (i.a. options and futures on stocks or indices). Options offer a lot of possibilities in the creation of advanced strategies. They can be used during variable market trends, in changeable circumstances, and are dependent on forecasted price level and volatility. The aim of the article is to investigate what was the rate of return of two options strategies: long straddle and short straddle. The research hypothesis was formulated that, in the years 2005–2015, strategies which were used on the assumption of the low volatility of the WIG20’s value, offered higher rates of return than other strategies. In the empirical research, quotations from the Warsaw Stock Exchange have been utilized. In the period given, higher profitability was obtained by selling options.

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1 FINANSE Czasopismo Komitetu Nauk o Finansach PAN

1 Folia Oeconomica Stetinensia

1 Flotyński M.

1 Stolorz B.

1 2017

1 2007

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Probability of Exercise of Option

Comparison of the results of long and short straddle option strategies on the WIG20 during 2005–2015