Long ratio put spread versus call strategy for stock of ABC company

Question

Part(1)

Long ratio put spread versus call strategy for ABC company

Current market price:$639, view: moderately bearish

Buy 2 February 630 Puts@ 35.00

Sell 1 February 660 Put@ 52.00

Sell 2 February 690 Calls@ 13.00

Net credit:$8

Breakeven 1: $608

Breakeven 2: $652

Breakeven 3: $694

Graph of the payoff profile of this strategy is given below:

Below $608 : Unlimited profit potential

Between $608 to $652 : Loss (maximum loss of $22 at $630 level)

Between $652 to $694: Profit(maximum profit of $8 between $660 and $690)

Above $694: Unlimited Loss potential

Part(2)

Now if we analyze the above strategy with option strategy analyzer, let us see what we get

Now you will notice that maximum profits and losses figures given in Part(1) do not match with the profits and losses figures given by the option strategy analyzer at different price levels of stock of ABC company. Why?

In my opinion, Option strategy analyzer considers the squaring off the option trades at the time of expiration while Option strategy given in Part(1) considers exercising of the options at those breakeven points at the time of expiration. Is that correct?

Now, which action is profitable 1)to square off the option trade or 2)exercise the option by you or counter-party at the expiry of 30 days time period as the case may be.

Answer 1

There is one small misstatement in your conclusion. On an expiration basis, your position makes money below $608 due to being net long one put. It is not unlimited since the lower bound is $0. Other than that, your analysis is spot on. Therefore, I did not look at the results from the Option Strategy Analyzer.