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Bull spread , bear spread 1.0
The document discusses various options trading strategies, primarily focusing on bull and bear spreads. In a bull call spread, an investor buys call options at a lower strike and sells at a higher strike to profit from moderate price increases. Conversely, a bear put spread entails buying puts at a higher strike and selling at a lower strike, profiting from expected declines in the asset's price.
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Bull spread , bear spread 1.0
- 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 movement Long 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 high Write a Call 5700 80 Nifty 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 Payout 400 350 300 250 200 150 100 50 0 5200 5300 5400 5500 5600 5700 5800 5900 6000 6100 6200 -50 wealthhandholding.blogspot.in
- 5. Summary …Investopedia An optionsstrategy that involves purchasing call options at a specific strike price while also selling the same number of calls of the same asset and expiration date but at a higher strike. A bull call spread is used when a moderate rise in the price of the underlying asset is expected. The maximum profit in this strategy is the difference between the strike prices of the long and short options, less the net cost of options. Most often, bull call spreads are vertical spreads. Let's assume that a stock is trading at $18 and an investor has purchased one call option with a strike price of $20 and sold one call option with a strike price of $25. If the price of the stock jumps up to $35, the investor must provide 100 shares to the buyer of the short call at $25. This is where the purchased call option allows the trader to buy the shares at $20 and sell them for $25, rather than buying the shares at the market price of $35 and selling them for a loss. wealthhandholding.blogspot.in
- 6. Put Bear Spread Strategy • Write a put at lower strike price and buy at put at higher prices Risk • Maximum Gain: Difference Strike Price – Extra premium Paid Reward • 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, as Buy a Put 5700 100strike price is high Write a Put 5300 80 Nifty 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 Representation 400 350 300 250 200 Series1 150 100 50 0 1 2 3 4 5 6 7 8 9 10 11 12 13 -50 wealthhandholding.blogspot.in
- 9. Summary …Investopedia A typeof options strategy used when an option trader expects a decline in the price of the underlying asset. Bear Put Spread is achieved by purchasing put options at a specific strike price while also selling the same number of puts at a lower strike price. The maximum profit to be gained using this strategy is equal to the difference between the two strike prices, minus the net cost of the options. For example, let's assume that a stock is trading at $30. An option trader can use a bear put 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 strike price of $30 for $175 ($1.75 * 100 shares/contract). In this case, the investor will need to pay a total of $300 to set up this strategy ($475 - $175). If the price of the underlying asset 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