Split strike conversion strategy

An investor can create a collar position by purchasing an out-of-the-money put option while he simultaneously writes an out-of-the-money call option. A collar is also known as hedge wrapper. A collar may also describe a general restriction on market activities. An example of a collar in market activities is a circuit breaker that is meant to prevent extreme losses or gains once an index reaches a certain level.

I find that when I am learning new strategies it is best to use an example:. I think this is a fantastic strategy to implement once I get to shares on my long term holds from way back in my dividend growth days feels like a lifetime a go since I stopped because of some naked puts that went south on me. So this Split Strike strategy he allegedly applied is also new to me. Funny is that it is a simple Collar strategy.


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I think the goal with this protection is create a trade where the covered call ideally offsets all debit needed to buy puts. I have simulated a few in the past and it can be done to make the trade a credit one. In this case it could be a very effective protection.

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Bernie Madoff

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Bernie Madoff Definition

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Are you sure you want to Yes No. Be the first to like this. No Downloads. Views Total views. Actions Shares. No notes for slide. Madoff Report 1. P a g e 1 Table of Contents Abstract P a g e 2 Abstract was a dark time for everyone connected to the financial world. Madoff had consistently reported high returns with low volatility.

Because of his reputation on Wall Street, a lot of the warning signs were overlooked. A lot of the warnings were eventually taken into account when Harry Markopolos, a private fraud investigator, brought it to the attention of the SEC. To prove that Bernie Madoff was indeed a fraud, the team has replicated his split-strike conversion strategy.

Safely Make $50,000 Per Year From One Stock? Exploring the Collar Option Strategy

By using binomial trees and 1, simulations, Prestige Worldwide valued the options and measured their payoffs. After concluding their replications, Prestige Worldwide revealed that the split-strike conversion strategy is a favorable strategy. It produces high returns while hedging against any risk associated with the investment.

The contents of this report will include a series of steps that refer to the best optimization strategy and is further discussed in the following pages. With help from his father-in-law, a retired C. The main concern was the efficiency of returns Madoff was generating. Madoff eventually admitted that a branch of his firm was an elaborate Ponzi scheme and was arrested on December 10, for 11 different felony counts and was sentenced to the maximum years in federal prison. We will use several metrics to prove the invalidity of Madoff's strategy: average excess returns, volatility, and the Sharpe Ratio.

The excess returns varies from the average returns in that it calculates the returns from the security that exceed a benchmark of similar risk.

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This investment resulted in an annualized average return of 5. With this high risk rate the returns were generating a low excess return. In comparison, the Fairfield Returns, which is the referenced Madoff fund, had much higher annualized average returns of 9.

When compared to the other funds, the volatility, or risk, was suspicious, considering the much higher returns and consistently beating the market index. It also had 7.