Some Formulae for Evaluating Two Popular Option Strategies
35 Pages Posted: 19 May 2008
This paper presents formulae for the long term annualized period return, expected annualized period return, and variance of annualized period return for two popular option strategies. The two strategies are stock plus put (portfolio insurance) and stock minus call (covered write). Various supporting formulae are presented, too. The formulae are used to resolve several common misconceptions about these strategies.
Keywords: option, portfolio, insurance, long term, return
JEL Classification: G11
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