The Optimal Option Trading Strategies under Different Volatilities and Interest Rate

• Main Authors: Lu-Han Lee, 李如翰
• Other Authors: George Y. Wang
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/34144811827133516897

碩士 === 國立高雄應用科技大學 === 商務經營研究所 === 97 === Within the past research in the field of finance, volatility has always been a significant subject of discussion. The application of volatility concepts to design option trading strategies has been actively explored. Investors should have certain understanding in volatility as to select their proper trading strategy, their long or short position, and their timing of trade. It is known that option investors utilize volatility as a trading indicator and combine it with trading strategies to maximize trading profits. This thesis starts of with a basic introduction of option trading strategies. We then perform a Monte Carlo simulation to produce simulated stock prices and input them into the Black-Scholes formula to calculate the the oretical profit outcomes of different stock option trading strategies. While varying stock return volatility and interest rates, we investigate the strategies that produce the maximum profits, and finally analyze and discuss the results. We find that after 10,000 simulations, the average rate of return of “Straddles” and “Strangles” are positive, and “Short Straddles” show a higher rate of return when volatility is low. For “Spreads,” the outcomes are dubious. Simulations also show that “Straddles” and “Strangles” are more sensitive to volatility, whereas “Spreads” are less sensitive to volatility. We conclude that regardless of the value of volatility, “Short Straddles” should be applied since return outcomes are better than “Short Strangles” strategies. When interest rates are low, “Short Straddles” also produce higher returns.