Box or Conversion | PFG Futures

Box or Conversion

Class: Precision


These spreads are referred to as “locked trades” because

their value at expiration is totally independent of the price of

the underlying instrument. If you can buy them for less than

that value or sell them for more, you will make a profit

(ignoring commission cost).

When to use:

Occasionally, a market will get out of line enough to justify

an initial entry into one of these positions. However, they

are most commonly used to “lock” all or part of a portfolio

by buying or selling to create the missing “legs” of the

position. These are alternatives to closing out positions at

possibly unfavorable prices.

Long Box:

Long a bull spread, long a bear spread – that is,

long call A, Short call B, long put B, short put A. Value =

B -A.

Short Box:

Long call B, short call A, long put A, short put B.

value = A – B.

Long-instrument conversion:

Long instrument, long put A, short call A. Value = 0.

“Price” = instrument + put – A -call.

Short-instrument conversion:

Short instrument, long call A, short put A. Value = 0.

“Price” = A + call – instrument -put.

See also  Short Butterfly | PFG Futures