Python for Finance

Options and Futures
The related graph showing the positions of a stock only, call, and covered-call is
given here. Obviously, when the stock price is under $17 (15 +2), the covered-call
is better than long a share:
Straddle – buy a call and a put with the same
exercise prices
Let's look at the simplest scenario. A firm faces an uncertain event next month. The
issue is that we are not sure about its direction, that is, a good event or bad one. To
take advantage of such an opportunity, we could u a call and buy a put with the
same exercise prices. This means that we will benefit either way: the stock moves up
or down. Assume further that the exercise price is $30. The payoff of such a strategy
is given here:
import matplotlib.pyplot as plt
import numpy as np
sT = np.arange(30,80,5)
x=50; c=2; p=1
straddle=(abs(sT-x)+sT-x)/2-c + (abs(x-sT)+x-sT)/2-p
y0=np.zeros(len(sT))
plt.ylim(-6,20)
plt.xlim(40,70)
plt.plot(sT,y0)
plt.plot(sT,straddle,'r')
plt.plot([x,x],[-6,4],'g-.')
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