Beesham Lal Umar Farooq Options strategies Introduction Strategy is formed by a ppropriate mixture of put and call options depending on preferences of trader Strategy is commonly used to make profit from movements in prices ID: 179625
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Speakers:Beesham LalUmar Farooq
Options strategiesSlide2
IntroductionStrategy is formed by appropriate mixture of put and call options depending on preferences of traderStrategy is commonly used to make profit from movements in prices
Strategy can also be used by an individual for hedging and insuranceSlide3
Market circumstancesBullishBearishNeutral-bullish in volatility
Neutral-bearish in volatilitySlide4
Bullish strategiesSlide5
Long callLong 1 at-the-money call optionAlmost certain that price would move upwardSlide6
Bull call spreadLong 1 in-the-money call & short 1 out-of-money callPrices are expected to go up moderatelyReduces cost by forgoing unlimited profitSlide7
Call back spreadShort 1 in-the-money call & long 2 out-of-money callExpects big move in prices of high volatile security
Cost can be zero with proper choice of callsSlide8
Bearish strategiesSlide9
Long putLong 1 at-the-money put optionAlmost certain that price would move downwardSlide10
Bear put spreadShort 1 in-the-money put & long 1 out-of-money putPrices are expected to go down moderatelyReduces cost by forgoing some profit potentialSlide11
Put back spreadShort 1 in-the-money put & long 2 out-of-money putExpects big downward move in prices of high volatile assets
Cost can be zero with proper choice of putsSlide12
Neutral strategiesSlide13
Short strangleShort 1 out-of-money put & short 1 out-of-money callExpects prices to remain stable with bearish in volatility
Unlimited loss if got betrayed by expectationsSlide14
Short butterfly spreadShort 1 out-of-money put, long 1 at-the-money put, long 1 at-the-money call and short 1 out-of-money callExpects prices to remain stable with bullish in volatility
Unlimited loss if got betrayed by expectationsSlide15
Insurance strategiesSlide16
Pay later strategyHolds underlying asset, long 2 put options with same strike price & short 1 put optionNet premium is zero
Needs insurance if price goes down but wants full profit if prices move up
Pays for
insurance
only if it is needed
Price of underlying
asset at time
of maturity
Payoff of
un-hedged
asset with current price of 80
Payoff on 2 purchased l00 strike put options
Payoff of written 112.93 strike put option
Combined payoff
60
-20
80
-52.93
7.07
70
-10
60
-42.93
7.07
80
0
40
-32.93
7.07
90
10
20
-22.93
7.07
100
20
0
-12.93
7.07
110
30
0
-2.93
27.07
112.93
32.93
0
0
32.93
120
40
0
0
40Slide17
ConclusionAn individual can combine different options depending on his needsTrader can lose a lot of money if her expectations are not up to dateSlide18
QUESTIONS