Identifier: C4T4L5 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Derive bounds from signed legs rather than a name. 2. Add execution and funding costs to a payoff boundary. 3. Reject a package whose legs do not preserve the intended bound.

Prerequisite: C4T4L4.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

Begin a strategy audit with a signed leg ledger. For each leg record type, strike, expiry, units, direction, premium, exercise style and settlement. Sum exact terminal payoffs at every strike boundary and at the relevant extremes. This identifies kinks and uncapped tails without relying on a strategy name. Then record the opening debit or credit and a complete cost ledger. A marketed “limited-risk” label is insufficient if quantities or deliverables are mismatched.

Price and return drivers

For an equal-quantity vertical, inspect the strike width and premium. A cost-adjusted breakeven shifts by costs divided by underlying units. Full-cost maximum loss also includes financing over the specified holding period and taxes if a verified tax schedule is supplied. Early exit uses executable leg prices or a package quote; it is not the terminal payoff discounted with no other inputs. Model spread values may be bounded while liquidation quotes include wide spreads, special funding or operational mismatches.

Worked case

Audit synthetic +2 callsK100 at9 and−2 callsK115 at4, multiplier100. Debit1000; strike-width payoff cap3000. Supplied full costs: entry fees20, exit/settlement fees20, custody10 and funding1000×12%×90/360=30; spread is already embedded in quoted premiums. Costs80, maximum loss1080, maximum profit1920, breakeven105.40. At expiry90,105,130 net is−1080,−80,+1920. State quantities explicitly: selling3 upper calls instead of2 adds an uncovered short call beyond115 and destroys the upper loss bound.

Adverse case

Before expiry a package closing bid4.50 per underlying unit yields900 proceeds and net900−1000−80=−180. A supplied midpoint5.40 would imply1080, but cannot support a sale when the bid is4.50. If the long leg closes while the short remains open, the account has an uncovered short obligation. An apparently protective expiry payoff does not prevent a collateral demand during a leg mismatch or the full strike-cash need of a physically settled variation. Neither a stop nor an indicative midpoint repairs those obligations.

Practical use

Audit actual quantities and quote sides before approval. The worked ledger includes custody and funding; replace each synthetic cost with dated evidence before proposing a real transaction.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use the ledger as a go/no-go check: quantities and fixing conventions match; every cash obligation has a source; the maximum loss fits; and an execution plan is plausible for the supplied depth. Decline until a mismatched leg or unknown cost is resolved. If the maximum loss cannot be derived because a barrier, call right or settlement choice is ambiguous, the contract is not yet understood. Accepting a smaller intended position can be preferable to removing the protective leg to reduce fees.

Practice and references

Exercise: +1 callK80 premium10;−1 callK90 premium4; multiplier200. Solution: Net debit1200, total full costs60, spread width payoff2000. Maximum loss1260, maximum profit740, breakeven86.30. At expiryS87 payoff1400 and profit140. At a supplied pre-expiry package bid6.50, sale proceeds1300 and net40. The different figures correctly use different time points.

Takeaway: Derive boundaries from actual signed quantities and full costs; a missing wing or extra short can invalidate them. Reference links: product card, formula; glossary: Payoff boundary; Leg risk. Next: C4T5L1. Topic test.

Sources: Borsa Istanbul: Options (retrieved 2026-10-26; General information and basic concepts). Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: All Strategies (retrieved 2026-10-26; Strategy descriptions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide | Class examination