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Inverse Vertical Ratio Put Spread Strategy and its Application in Hedging Against a Price Drop


Author Info

  • Vincent Šoltés

    (Department of Finance, Faculty of Economics, Technical University of Košice)

  • Omer Faraj S. Amaitiek

    (Department of Finance, Faculty of Economics, Technical University of Košice)


The paper proposes a generalization of a strategy known as the Long Two Buy One Ratio Put or Put Backspread Strategy. Moreover, it proposes an application of the strategy in hedging against a price drop of the underlying asset to a future date in a way which enables hedging with zero cost. We have found a profit function, as well as a function of income from a hedged position in the analytical form, which simplifies the application in particular hedging.

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Bibliographic Info

Article provided by ASERS Publishing in its journal Journal of Advanced Studies in Finance.

Volume (Year): I (2010)
Issue (Month): 1 (June)
Pages: 100-107

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Handle: RePEc:srs:jasf12:8:v:1:y:2010:i:1:p:100-107

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Related research

Keywords: option strategy; hedging; price drop; profit function; premium zero cost;

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