Title: Trading Strategies Involving Options
1Trading Strategies Involving Options
2Types of 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)
3Positions in an Option the Underlying (Figure
10.1, page 224)
Profit
Profit
K
ST
ST
K
(a)
(b)
Profit
Profit
K
K
ST
ST
(c)
(d)
4Bull Spread Using Calls(Figure 10.2, page 225)
Profit
ST
K1
K2
5Bull Spread Using PutsFigure 10.3, page 226
6Bear Spread Using PutsFigure 10.4, page 227
7Bear Spread Using CallsFigure 10.5, page 229
Profit
K1
K2
ST
8Box 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)
9Butterfly Spread Using CallsFigure 10.6, page 231
Profit
K1
K3
ST
K2
10Butterfly Spread Using PutsFigure 10.7, page 232
Profit
K1
K3
ST
K2
11Calendar Spread Using CallsFigure 10.8, page 232
Profit
ST
K
12Calendar Spread Using PutsFigure 10.9, page 233
Profit
ST
K
13A Straddle CombinationFigure 10.10, page 234
Profit
ST
K
14Strip StrapFigure 10.11, page 235
Profit
Profit
K
ST
K
ST
Strip
Strap
15A Strangle CombinationFigure 10.12, page 236
Profit
K1
K2
ST