In SDX Commodities & Energy, for a number of strategies, after defining the strike of one of the legs you can instruct the system to automatically enter the strike for the other leg that will give you a zero cost strategy. You do this by entering z or zero cost in the relevant Strike field.
This is supported for the following strategies:
Collar (col)
2-leg vanilla (2leg)
3-leg vanilla (3leg)
3-vol butterfly (3vbfl)
Vanilla strip collar (colst)
Vanilla strip 2-leg (2legst)
Asian collar (acol)
Asian 2-leg (a2leg)
Asian strip collar (acolst)
Asian strip 2-leg (a2legst)
When solving for the strike that will give a zero cost strategy, by default the system always solves for a zero cost strategy for the market maker, i.e., for the bid price. However, you can manually choose whether the system solves for a zero cost strategy for the market maker or for the market taker. You do this using the Market Maker <> Market Taker toggle button.
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This toggle button only appears in the pricing page next to one of the Strike fields after you enter z or zero cost in that field. |
After you then calculate the results, in the Results area for the Total Price result you will see that either the bid (if you chose to solve for the market maker) or the ask (if you chose to solve for the market taker) is zero.
To use the Solver to solve for a zero cost strategy:
| 1. | Enter a supported strategy in the Single Option page. |
| 2. | After entering one of the strikes, for the other strike enter z or zero cost. |
| 3. | Click Calculate. SDX Commodities & Energy solves for the strike that will give a premium of zero. |