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Option Strategies: Bull and Bear Spread.....

Option Strategies: Bull and Bear Spread.....

Bull and Bear Spread Presentation is made free.

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Bull spread , bear spread 1.0 Presentation Transcript

  • 1. Option Strategies…. Bullish ….Chapter 2 Bull Spread Bear Spread wealthhandholding.blogspot.in
  • 2. Bull Spread • Write a call option at Higher strike price and buy the call Strategy option at Lower strike price • Buy the stock to hegde the losses from Call Buy a stock/ • Buy future to hedge the losses from Upside movementLong on future • But do not hedge the downside as require to pay the margins • Maximum Loss: Difference in Strike Price - Premium Risk Reward Paid for period • Minimum Loss: wealthhandholding.blogspot.in
  • 3. Scenario Analysis Strike Price Option Cost Comments Cost of call would be high as chances of ending up in the money is more,Buy a Call 5300 100as strike price is highWrite a Call 5700 80Nifty Levels S1 Payout S2 Payout Product Payout 5200 -100 80 -20 5300 -100 80 -20 5400 0 80 80 5500 100 80 180 5600 200 80 280 5700 300 80 380 5800 400 -20 380 5900 500 -120 380 6000 600 -220 380 6100 700 -320 380 6200 800 -420 380 wealthhandholding.blogspot.in
  • 4. Graphical Representation Product Payout40035030025020015010050 0 5200 5300 5400 5500 5600 5700 5800 5900 6000 6100 6200-50 wealthhandholding.blogspot.in
  • 5. Summary …InvestopediaAn options strategy that involves purchasing call options at a specific strikeprice while also selling the same number of calls of the same asset andexpiration date but at a higher strike. A bull call spread is used when amoderate rise in the price of the underlying asset is expected. The maximumprofit in this strategy is the difference between the strike prices of the longand short options, less the net cost of options. Most often, bull call spreadsare vertical spreads.Lets assume that a stock is trading at $18 and an investor has purchased onecall option with a strike price of $20 and sold one call option with a strikeprice of $25. If the price of the stock jumps up to $35, the investor mustprovide 100 shares to the buyer of the short call at $25. This is where thepurchased call option allows the trader to buy the shares at $20 and sellthem for $25, rather than buying the shares at the market price of $35 andselling them for a loss. wealthhandholding.blogspot.in
  • 6. Put Bear SpreadStrategy • Write a put at lower strike price and buy at put at higher prices Risk • Maximum Gain: Difference Strike Price – Extra premium PaidReward • Maximum Loss: Difference in the premium paid Break • Volatility Inc: +ve • Volatility Dec: -ve effect Even • Break even: Purchase price + Premium Paid wealthhandholding.blogspot.in
  • 7. Scenario Analysis Strike Price Option Cost Comments Cost of Put would be high as chances of ending up in the money is more, asBuy a Put 5700 100strike price is highWrite a Put 5300 80Nifty Levels S1 Payout S2 Payout Product Payout 5000 600 -220 380 5100 500 -120 380 5200 400 -20 380 5300 300 80 380 5400 200 80 280 5500 100 80 180 5600 0 80 80 5700 -100 80 -20 5800 -100 80 -20 5900 -100 80 -20 6000 -100 80 -20 6100 -100 80 -20 6200 -100 80 -20 wealthhandholding.blogspot.in
  • 8. Graphical Representation400350300250200 Series1150100 50 0 1 2 3 4 5 6 7 8 9 10 11 12 13-50 wealthhandholding.blogspot.in
  • 9. Summary …InvestopediaA type of options strategy used when an option trader expects a decline in the price ofthe underlying asset. Bear Put Spread is achieved by purchasing put options at a specificstrike price while also selling the same number of puts at a lower strike price. Themaximum profit to be gained using this strategy is equal to the difference between thetwo strike prices, minus the net cost of the options.For example, lets assume that a stock is trading at $30. An option trader can use a bearput spread by purchasing one put option contract with a strike price of $35 for a cost of$475 ($4.75 * 100 shares/contract) and selling one put option contract with a strikeprice of $30 for $175 ($1.75 * 100 shares/contract). In this case, the investor will needto pay a total of $300 to set up this strategy ($475 - $175). If the price of the underlyingasset closes below $30 upon expiration, then the investor will realize a total profit of$200 (($35 - $30 * 100 shares/contract) - ($475 - $175)). wealthhandholding.blogspot.in
  • 10. WealthHandHolding…..Raggedminds.com initiative whh@raggedminds.com wealthhandholding.blogspot.in