Trading Strategies Involving Options

1
Trading Strategies Involving Options

• Chapter 10

2
Types 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)

3
Positions 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)
4
Bull Spread Using Calls(Figure 10.2, page 225)

Profit
ST
K1
K2
5
Bull Spread Using PutsFigure 10.3, page 226
6
Bear Spread Using PutsFigure 10.4, page 227
7
Bear Spread Using CallsFigure 10.5, page 229
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 231
Profit
K1
K3
ST
K2
10
Butterfly Spread Using PutsFigure 10.7, page 232
Profit
K1
K3
ST
K2
11
Calendar Spread Using CallsFigure 10.8, page 232
Profit
ST
K
12
Calendar Spread Using PutsFigure 10.9, page 233
Profit
ST
K
13
A Straddle CombinationFigure 10.10, page 234
Profit
ST
K
14
Strip StrapFigure 10.11, page 235

Profit
Profit
K
ST
K
ST
Strip
Strap
15
A Strangle CombinationFigure 10.12, page 236
Profit
K1
K2
ST