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Trading Strategies Involving Options

Trading Strategies Involving Options. Chapter 10. Three Alternative Strategies. Take a position in the option and the underlying Take a position in 2 or more options of the same type (A spread) Combination: Take a position in a mixture of calls & puts (A combination).

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Trading Strategies Involving Options

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  1. Trading Strategies Involving Options Chapter 10

  2. Three Alternative Strategies • Take a position in the option and the underlying • Take a position in 2 or more options of the same type (A spread) • Combination: Take a position in a mixture of calls & puts (A combination)

  3. Positions in an Option & the Underlying (Figure 10.1, page 226) Profit Profit K ST ST K (a) (b) Profit Profit K K ST ST (c) (d)

  4. Bull Spread Using Calls(Figure 10.2, page 227) Profit ST K1 • K2

  5. Profit K1 K2 ST Bull Spread Using PutsFigure 10.3, page 228

  6. Profit K1 K2 ST Bear Spread Using PutsFigure 10.4, page 229

  7. Bear Spread Using CallsFigure 10.5, page 230 Profit K1 K2 ST

  8. Box Spread • A combination of a bull call spread and a bear put spread • If all options are European a box spread is worth the present value of the difference between the strike prices • If they are American this is not necessarily so (see Business Snapshot 10.1)

  9. Butterfly Spread Using CallsFigure 10.6, page 232 Profit K1 K2 K3 ST

  10. Butterfly Spread Using PutsFigure 10.7, page 233 Profit K1 K2 K3 ST

  11. Calendar Spread Using CallsFigure 10.8, page 234 Profit ST K

  12. Calendar Spread Using PutsFigure 10.9, page 235 Profit ST K

  13. A Straddle CombinationFigure 10.10, page 236 Profit K ST

  14. Strip & StrapFigure 10.11, page 237 Profit Profit K ST K ST Strip Strap

  15. A Strangle CombinationFigure 10.12, page 238 Profit K1 K2 ST

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