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There are various multi-leg strategies available in Binance Options RFQ for users to select. Below provides a general guide for each selection.
The buyer of a Single Call has the right to buy an agreed-upon quantity of the underlying asset from the seller at a predetermined time (expiry) for a pre-specified price (strike).
In Binance Options, the contract is automatically exercised if it is in-the-money at expiry. The total payoff (in stablecoin, e.g. USDT) is the difference between the spot index price and strike price multiplied by quantity, minus any premiums and fees paid.
If the contract is out-the-money, then it expires worthless. The expected payoff of a long Single Call increases as the underlying asset’s price increases past the strike. This strategy is typically used when an individual expects prices to increase.
The buyer of a Single Put has the right to sell an agreed-upon quantity of the underlying asset to the seller at a predetermined time (expiry) for a pre-specified price (strike).
In Binance Options, the contract is automatically exercised if it is in-the-money at expiry. The total payoff (in stablecoin, e.g. USDT) is the difference between the strike price and spot index price multiplied by quantity, minus any premiums and fees paid.
If the contract is out-the-money, then it expires worthless. The expected payoff of a long Single Put increases as the underlying asset’s price decreases past the strike. This strategy is typically used when an individual expects prices to decrease.
A Call Spread strategy involves holding both a long and short position in a Call option with the same expiry but at different strikes. In a long Call Spread, this typically means buying and selling a Call option, where the long position has a lower strike than the short.
In this example, the maximum payoff (minus any premiums and fees paid) occurs when the price reaches the higher strike at expiry. This strategy is typically used when an individual expects prices to rise, but wants to offset some premium costs by limiting the potential profit.
A Put Spread strategy involves holding both a long and short position in a Put option with the same expiry but at different strikes. In a long Put Spread, this typically means buying and selling a Put option, where the long position has a higher strike than the short.
In this example, the maximum payoff (minus any premiums and fees paid) occurs when the price reaches the lower strike at expiry. This strategy is typically used when an individual expects prices to fall, but wants to offset some premium costs by limiting the potential profit.
A Calendar Spread strategy involves holding two positions in either a Call or Put option with the same strike, but different direction and expiries. In a long Calendar Call strategy, this typically means selling a near-dated expiry Call and buying a longer-dated expiry Call with the same strikes.
In this example, the expected payoff peaks in the near term as price approaches strike. After the near-dated contract expires, the payoff behaves similar to that of a Single Call (minus any premiums and fees paid). This strategy is typically used when an individual has a view on near and long-term price movements and/or seeks to capitalise on time decay.
A Diagonal Spread strategy involves holding two positions in either a Call or Put option with different directions, expiries, and strikes. In a long Diagonal Call strategy, this typically means selling a near-dated expiry Call with a higher strike price, and buying a longer-dated expiry Call with a lower strike price.
In this example, the expected payoff peaks in the near term as price approaches the higher strike. After the near-dated contract expires, the payoff behaves similar to that of a Single Call (minus any premiums and fees paid). This strategy is typically used when an individual has a view on near and long-term price movements and/or seeks to capitalise on time decay.
A Straddle strategy involves holding a position in both a Call and Put option with the same direction, expiry, and strike. In a long Straddle strategy, this typically means buying both a Call and Put option with the same expiry and strike. The total payoff of this strategy is dependent on the underlying asset’s price movement rather than price direction.
In this example, the expected payoff increases as the price moves past the strikes on either side (minus any premiums and fees paid). This strategy benefits from volatility, and is typically used when an individual expects prices to be volatile.
A Strangle strategy involves holding a position in both a Call and Put option with the same direction and expiry, but at different strikes. In a long Strangle strategy, this typically means buying both a Call and Put option with the same expiry, where the Call strike is higher than the Put strike. The total payoff of this strategy is dependent on the underlying asset’s price movement being greater than the current difference between strike price and spot index price, in either direction.
In this example, the expected payoff increases as the price moves past the strikes on either side (minus any premiums and fees paid). This strategy is typically used when prices are expected to be volatile, and/or individuals looking to execute a cheaper alternative to a Straddle.
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