LONG STRANGLE STRATEGY USING BARRIER OPTIONS AND ITS APPLICATION IN HEDGING

This paper presents new theoretical results for hedging of an underlying asset price through a static portfolio of European call and put barrier options. We illustrate the theory with numerical examples and discuss the practical implementation. We derive profit functions from secured position in analytical form for two different methods of long strangle strategy formation using barrier options. Based on profit functions, we propose hedging against a price drop of real-traded underlying asset that is SPDR gold shares, analyze the proposed hedging variants and compare the obtained results.