Reverse time spread
| Range | Value |
|---|---|
Market expectation | Undirected strong price change |
Construction | Call long with a shorter term |
Profit potential | Unlimited |
Risk of loss | Limited |
Time effect | Negative |
Volatility effect | Positive |
Market expectation
If you assume undirected strong price changes, it is possible to speculate on different developments of warrants with different remaining terms with the help of a reverse time spread.
Construction
A reverse time spread consists of a bought and a sold option of the same option class with identical strike prices but different remaining terms.
This applies both to reverse time spreads with calls and to those with puts.
Profit potential
The profit potential is unlimited with strongly changing prices.
Risk of loss
The risk of loss of the reverse time spread is limited.
Time effect
In contrast to time spreads, the time value effect is negative.
Volatility effect
The volatility effect is positive, as there is speculation on strong price changes.