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Effect of the Time to Maturity on the Risk of the Covered Call Strategy

In: Eurasian Economic Perspectives

Author

Listed:
  • Ewa Dziawgo

    (Kazimierz Wielki University)

Abstract

This chapter illustrates the selected issues connected with the covered call strategy: the strategy design, the impact of certain variables (the price of the underlying asset and time to expiration (maturity) on the performance of the values of the ratios delta, gamma, vega, theta, and rho. These ratios are the risk measures and are very important in risk management of the option transactions. They determine the influence of changes in the risk factor on the price of the option. The aim of this study is to present an analysis of the effect of the time to expiration on the value and the risk of the covered call strategy. The chapter uses the methods of mathematical analysis. The empirical illustration shown in the chapter is presented based on the currency options (on EUR/USD) pricing simulation. The simulation was carried out for the period 02.01.2019–15.03.2019. The results indicate that all measures values of the risk of covered call strategy are significantly volatile over time.

Suggested Citation

  • Ewa Dziawgo, 2020. "Effect of the Time to Maturity on the Risk of the Covered Call Strategy," Eurasian Studies in Business and Economics, in: Mehmet Huseyin Bilgin & Hakan Danis & Ender Demir (ed.), Eurasian Economic Perspectives, pages 67-75, Springer.
    • Handle: RePEc:spr:eurchp:978-3-030-53536-0_5
    DOI: 10.1007/978-3-030-53536-0_5
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