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![41
Long Butterfly
Large stock price movement unlikely. Often used
as a follow up strategy
Use
Low BEP = Middle Strike – Profit
High BEP = Middle Strike + Profit
Breakeven
YesMargin
NeutralVolatility
NeutralTime Decay
Limited to the net premium paidLoss
Limited to [(B – A) or (C – B)] – Net premiumProfit
CommentView](https://image.slidesharecdn.com/derivativesstrategyguideitrade-140927003506-phpapp02/75/ITRADE-Derivatives-strategy-guide-41-2048.jpg)
![47
Short Butterfly
Large stock price movement expected. Often
used as a follow up strategy
Use
Low BEP = Middle Strike – Loss
High BEP = Middle Strike + Loss
Breakeven
YesMargin
NeutralVolatility
NeutralTime Decay
Limited to [(B – A) or (C – B)] – Net premiumLoss
Limited to the net premium receivedProfit
CommentView](https://image.slidesharecdn.com/derivativesstrategyguideitrade-140927003506-phpapp02/75/ITRADE-Derivatives-strategy-guide-47-2048.jpg)
![69
Put Ratio Spread
YesMargin
Volatility decrease helps the positionVolatility
Expecting a tight sideways movement. Biased
towards an increase in stock price.
Use
HelpsTime Decay
If credit premium = [A – (B – A)] – premium
If debit premium = [A + (B – A)] – premium
Breakeven
Increases as the spot price decreasesLoss
(B – A) - (debit premium) or + (credit premium)Profit
CommentView](https://image.slidesharecdn.com/derivativesstrategyguideitrade-140927003506-phpapp02/75/ITRADE-Derivatives-strategy-guide-69-2048.jpg)
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ITRADE Derivatives strategy guide
This document provides summaries and payoff diagrams for various derivatives trading strategies including long calls, protective puts, call ratio back spreads, long futures, bull call spreads, short puts, long straddles, long strangles, long straps, long strips, long and short butterflies, long and short condors, and short butterflies. Each strategy is described in 1-3 sentences and includes information on market outlook, breakeven points, risk, and profit potential. Payoff diagrams visually depict strategy outcomes at different price levels.
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ITRADE Derivatives strategy guide
- 1. 1 Derivatives Strategy Guide Structured by: ganesh Ganesh 09600512124 admin@itradecm.com FB:moorthy.gm@gmail.com Yahoo:moorthygm@yahoo.co.in
- 2. 2 Strategy Guide -Table Short CallShort Straddle Short Strangle Short Strap & Strip Put & Call Ratio Spread Short Put Falling Short Futures Short Semi Futures Bear Put Spread Bear Call Spread Long Condor Short Condor Long Butterfly Short Butterfly Long Futures Long Semi Futures Bull Call Spread Bull Put Spread Neutral Long Put Put Ratio Backspread Long Straddle Long Strangle Long Strap Long Strip Long Call Call Ratio Backspread Rising BearishNeutralBullish Market Outlook Volatility Estimate All the above strategies have same expirationwww.itradecm.com 08681001100
- 3. 3 Risk – ReturnProfile Long Futures (11) Long Semi Futures ( 15) Short Futures ( 79) Short Semi Futures ( 83) Short Put & Call (24 & 92) Short Straddle & Strangle (53 & 56) Short Strap & Strip (60 & 63) Put Ratio Spread (69) Call Ratio Spread (66) Unlimited Long Call & Put (4 & 72) Call Ratio Backspread (8) Long Straddle & Strangle (28 & 31) Long Strap & Strip (35 & 38) Put Ratio Backspread (76) Bull Call Spread (18) Bull Put Spread (21) Long & Short Condor (44 & 50) Long & Short Butterfly (41 & 47) Bear Put Spread (86) Bear Call Spread (89) Limited UnlimitedLimited Return Risk Figures in brackets are page numbers www.itradecm.com 08681001100
- 4. 4 Long Call Very bullishoutlookUse Strike price + premiumBreakeven NoMargin Volatility increase helps the positionVolatility HurtsTime Decay Limited to the premium paidLoss Unlimited, Increases as the spot price increasesProfit CommentView www.itradecm.com 08681001100
- 5. 5 Long Call -Payoff Profit Loss Premium Strike Price Break Even www.itradecm.com 08681001100
- 6. 6 Long Call –Variant Protective Put • Have Underlying or Long Futures, and Buy Put (Downside Risk is hedged) Max. Loss : If Futures < Put strike = Premium - (Strike – Futures) If Futures > Put strike = (Futures - Strike) + premium Breakeven = Put Strike + Max. Loss www.itradecm.com 08681001100
- 7. 7 Protective Put –Payoff Profit Long Call Long Put Long Futures Loss Max. Loss Strike Price Break Even www.itradecm.com 08681001100
- 8. 8 Call Ratio Backspread YesMargin Volatilityincrease helps the positionVolatility Market is near B and outlook is bullishUse HurtsTime Decay B + Max. LossBreakeven (B – A) + (debit premium) or – (credit premium)Loss Increases as the spot price increasesProfit CommentView www.itradecm.com 08681001100
- 9. 9 Call Ratio Backspread(CRB) Formation • Sell a lower strike (A) call and, Buy 2 higher strike (B) calls Variant • Sell a lower strike (A) put, Buy 2 higher strike (B) calls and, Short Futures www.itradecm.com 08681001100
- 10. 10 Call Ratio Backspread- Payoff Profit Loss A B Net Premium (Credit) Breakeven Short Call Long Calls Max. Loss www.itradecm.com 08681001100
- 11. 11 Long Futures Very bullishoutlookUse Purchase price + BrokerageBreakeven YesMargin No impactVolatility No impactTime Decay Increases as the spot price decreasesLoss Increases as the spot price increasesProfit CommentView www.itradecm.com 08681001100
- 12. 12 Long Futures –Payoff Profit Loss Purchase Price www.itradecm.com 08681001100
- 13. 13 Long Futures –Variant Formation Buy Call A and Sell Put A Going Long at A + Call Premium – Put Premium www.itradecm.com 08681001100
- 14. 14 Long Futures –Variant Payoff Profit Loss A Long Futures Short Put Long Call www.itradecm.com 08681001100
- 15. 15 Long Semi –Futures Bullish outlookUse Call Strike (B) + Premium debit or Put Strike (A) - Premium credit Breakeven YesMargin NeutralVolatility Mixed – Hurts for Long Call and helps for Short Put Time Decay Increases as the spot price decreasesLoss Increases as the spot price increasesProfit CommentView www.itradecm.com 08681001100
- 16. 16 Long Semi –Futures Formation • Sell Put A and, Buy Call B Variant • Sell Call A, Buy Futures and, Buy Call B www.itradecm.com 08681001100
- 17. 17 Long Semi Futures– Payoff Profit Loss Long Call Short Put A B Breakeven www.itradecm.com 08681001100
- 18. 18 Bull Call Spread BullishoutlookUse Strike A + Max. LossBreakeven YesMargin NeutralVolatility Mixed – Hurts for Long Call and helps for Short Call Time Decay Limited, Max. Loss = Net PremiumLoss Limited, Max. Profit = (B – A) - Net PremiumProfit CommentView www.itradecm.com 08681001100
- 19. 19 Bull Call Spread Formation •Buy Call A and, Sell Call B Variant • Buy Call A, Sell Put B and, Short Futures www.itradecm.com 08681001100
- 20. 20 Bull Call Spread– Payoff Profit Loss Long Call Short Call A B Breakeven www.itradecm.com 08681001100
- 21. 21 Bull Put Spread BullishoutlookUse Strike A + Max. LossBreakeven YesMargin NeutralVolatility Mixed – Hurts for Long Put and helps for Short Put Time Decay Limited, Max. Loss = (B – A) – Net PremiumLoss Limited, Max. Profit = Net PremiumProfit CommentView www.itradecm.com 08681001100
- 22. 22 Bull Put Spread Formation •Buy Put A and, Sell Put B Variant • Buy Put A, Sell Call B and Long Futures www.itradecm.com 08681001100
- 23. 23 Bull Put Spread– Payoff Profit Loss Long Put Short Put A B Breakeven www.itradecm.com 08681001100
- 24. 24 Short Put Bullish outlookUse Strikeprice – PremiumBreakeven YesMargin Volatility decrease helps the positionVolatility HelpsTime Decay Unlimited, increases as the spot price decreasesLoss Limited to the premium receivedProfit CommentView www.itradecm.com 08681001100
- 25. 25 Short Put –Payoff Profit Loss Breakeven Strike Premium received www.itradecm.com 08681001100
- 26. 26 Short Put –Variant Covered Call • Have Underlying or Buy Futures, and Write a Call Max. Profit : Futures < Strike = Prem. + (Strike – Futures) Futures > Strike = Prem. – (Futures – Strike) Breakeven = Call Strike – Max. Profit www.itradecm.com 08681001100
- 27. 27 Short Put Variant– Payoff Profit Loss Breakeven Strike A Premium received Long Futures Short Call www.itradecm.com 08681001100
- 28. 28 Long Straddle Expecting alarge breakout, Uncertain about the direction Use Low BEP = Strike price – net premium High BEP = Strike price + net premium Breakeven NoMargin Volatility increase improves the positionVolatility HurtsTime Decay Limited to the net premium paidLoss UnlimitedProfit CommentView www.itradecm.com 08681001100
- 29. 29 Long Straddle Formation • BuyCall A and, Buy Put A Variant • Buy 2 Calls A & Short Futures or • Buy 2 Puts A & Long Futures www.itradecm.com 08681001100
- 30. 30 Long Straddle –Payoff Profit Loss Long Call Long Put Long Straddle Common Strike A Max. Loss Low Breakeven High Breakeven www.itradecm.com 08681001100
- 31. 31 Long Strangle Expecting alarge breakout, Uncertain about the direction Use Low BEP = A – Loss High BEP = B + Loss Breakeven NoMargin Volatility increase improves the positionVolatility HurtsTime Decay Limited, Premium – (B – A), if Call Strike is A Limited to premium, if Call Strike is B Loss UnlimitedProfit CommentView www.itradecm.com 08681001100
- 32. 32 Long Strangle Formation • BuyCall A and Buy Put B Variants • Buy Put A and Buy Call B • Buy Put A, Buy Put B and Long Futures • Buy Call A, Buy Call B and Short Futures www.itradecm.com 08681001100
- 33. 33 Long Strangle –Payoff Profit Loss Low Breakeven High Breakeven Long PutLong Call A B Call Strike = A, Put Strike B www.itradecm.com 08681001100
- 34. 34 Long Strangle –PayoffProfit Loss Low Breakeven High Breakeven Long PutLong Call A B Call Strike = B, Put Strike A www.itradecm.com 08681001100
- 35. 35 Long Strap Expecting alarge breakout, Uncertain about the direction. Increase in the stock more likely. Use Low BEP = Strike price – net premium High BEP = Strike price + (net premium / 2) Breakeven NoMargin Volatility increase improves the positionVolatility HurtsTime Decay Limited to the net premium paidLoss UnlimitedProfit CommentView
- 36. 36 Long Strap Formation • Buy2 Calls A and, Buy Put A Variant • Buy 3 Calls A & Short Futures
- 37. 37 Long Strap –PayoffProfit Loss Long Call Long Put Common Strike A Max. Loss Low Breakeven High Breakeven
- 38. 38 Long Strip Expecting alarge breakout, Uncertain about the direction. Decrease in the stock more likely. Use Low BEP = Strike price – (net premium / 2) High BEP = Strike price + net premium Breakeven NoMargin Volatility increase improves the positionVolatility HurtsTime Decay Limited to the net premium paidLoss UnlimitedProfit CommentView
- 39. 39 Long Strip Formation • Buy2 Puts A and, Buy Call A Variant • Buy 3 Puts A & Long Futures
- 40. 40 Long Strip –Payoff Profit Loss Long Call Long Put Common Strike A Max. Loss Low Breakeven High Breakeven
- 41. 41 Long Butterfly Large stockprice movement unlikely. Often used as a follow up strategy Use Low BEP = Middle Strike – Profit High BEP = Middle Strike + Profit Breakeven YesMargin NeutralVolatility NeutralTime Decay Limited to the net premium paidLoss Limited to [(B – A) or (C – B)] – Net premiumProfit CommentView
- 42. 42 Long Butterfly Formation • BuyCall A, Sell 2 Calls B, Buy Call C Variants • Buy Put A, Sell 2 Puts B, Buy Put C • Buy Call A, Sell Put & Call B, Buy Put C • Buy Put A, Sell Put & Call B, Buy Call C
- 43. 43 Long Butterfly –PayoffProfit Loss Low Breakeven High Breakeven Common Strike B A C
- 44. 44 Long Condor Large stockprice movement unlikely. Often used as a follow up strategy Use Low BEP = B – Profit High BEP = C + Profit Breakeven YesMargin NeutralVolatility NeutralTime Decay Limited, Maximum when spot is < A & > DLoss Limited, Maximum when spot is between B & CProfit CommentView
- 45. 45 Long Condor Formation • BuyCall A, Sell Call B & C, Buy Call D Variants • Buy Put A, Sell Put B & C, Buy Put D • Buy Put A, Sell Put B & Call C, Buy Call D • Buy Call A, Sell Call B & C, Buy Put D
- 46. 46 Long Condor –PayoffProfit Loss Low Breakeven High Breakeven A B C D
- 47. 47 Short Butterfly Large stockprice movement expected. Often used as a follow up strategy Use Low BEP = Middle Strike – Loss High BEP = Middle Strike + Loss Breakeven YesMargin NeutralVolatility NeutralTime Decay Limited to [(B – A) or (C – B)] – Net premiumLoss Limited to the net premium receivedProfit CommentView
- 48. 48 Short Butterfly Formation • SellCall A, Buy 2 Calls B, Sell Call C Variants • Sell Put A, Buy 2 Puts B, Sell Put C • Sell Put A, Buy Put & Call B, Sell Call C • Sell Call A, Buy Put & Call B, Sell Put C
- 49. 49 Short Butterfly –PayoffProfit Loss Low Breakeven High Breakeven B A C
- 50. 50 Short Condor Large stockprice movement expected. Often used as a follow up strategy Use Low BEP = B – Loss High BEP = C + Loss Breakeven YesMargin NeutralVolatility NeutralTime Decay Limited, Maximum when spot is between B & CLoss Limited, Maximum when spot is < A & > DProfit CommentView
- 51. 51 Short Condor Formation • SellCall A, Buy Call B & C, Sell Call D Variants • Sell Put A, Buy Put B & C, Sell Put D • Sell Put A, Buy Put B & Call C, Sell Call D • Sell Call A, Buy Call B & Put C, Sell Put D
- 52. 52 Short Condor –PayoffProfit Loss Low Breakeven High Breakeven A B C D
- 53. 53 Short Straddle Expecting atight sideways movementUse Low BEP = Strike price – net premium High BEP = Strike price + net premium Breakeven YesMargin Volatility decrease helps the positionVolatility HelpsTime Decay UnlimitedLoss Limited to the net premium receivedProfit CommentView
- 54. 54 Short Straddle Formation • SellCall A and, Sell Put A Variant • Sell 2 Calls A & Long Futures or • Sell 2 Puts A & Short Futures
- 55. 55 Short Straddle –Payoff Profit Loss Sell Call Sell Put Common Strike A Low Breakeven High Breakeven
- 56. 56 Short Strangle Expecting amoderate sideways movement.Use Low BEP = A – Profit High BEP = B + Profit Breakeven YesMargin Volatility decrease helps the positionVolatility HelpsTime Decay UnlimitedLoss Limited, Premium – (B – A), if Call Strike is A Limited to premium, if Call Strike is B Profit CommentView
- 57. 57 Short Strangle Formation • SellCall A and Sell Put B Variants • Sell Put A and Sell Call B • Sell Put A, Sell Put B and Short Futures • Sell Call A, Sell Call B and Long Futures
- 58. 58 Short Strangle –PayoffProfit Loss Low Breakeven High Breakeven Short PutShort Call A B Call Strike = A, Put Strike B
- 59. 59 Short Strangle –Payoff Profit Loss Low BeP High BeP Short PutShort Call A B Call Strike = B, Put Strike A
- 60. 60 Short Strap Expecting atight sideways movement. Decrease in the stock more likely. Use Low BEP = Strike price – net premium High BEP = Strike price + (net premium / 2) Breakeven YesMargin Volatility decrease helps the positionVolatility HelpsTime Decay UnlimitedLoss Limited to the net premium receivedProfit CommentView
- 61. 61 Short Strap Formation • Sell2 Calls A and, Sell Put A Variant • Sell 3 Calls A & Long Futures
- 62. 62 Short Strap –Payoff Profit Loss Short Calls Short Put Common Strike A Low BeP High BeP
- 63. 63 Short Strip Expecting atight sideways movement. Increase in the stock more likely. Use Low BEP = Strike price – (net premium / 2) High BEP = Strike price + net premium Breakeven YesMargin Volatility decrease helps the positionVolatility HelpsTime Decay UnlimitedLoss Limited to the net premium receivedProfit CommentView
- 64. 64 Short Strip Formation • Sell2 Puts A and, Sell Call A Variant • Sell 3 Puts A & Short Futures
- 65. 65 Short Strip –Payoff Profit Loss Short Call Short Puts Common Strike A Low BeP High BeP
- 66. 66 Call Ratio Spread YesMargin Volatilitydecrease helps the positionVolatility Expecting a tight sideways movement. Biased towards a decrease in stock price. Use HelpsTime Decay B + ProfitBreakeven Increases as the spot price increasesLoss (B – A) - (debit premium) or + (credit premium)Profit CommentView
- 67. 67 Call Ratio Spread Formation •Buy Call A & Sell 2 Calls B Variant • Buy Put A, Sell 2 Calls B & Long Futures
- 68. 68 Call Ratio Spread– Payoff Profit Loss A B Net Premium (Credit) Breakeven Short Calls Long Call Max. Profit
- 69. 69 Put Ratio Spread YesMargin Volatilitydecrease helps the positionVolatility Expecting a tight sideways movement. Biased towards an increase in stock price. Use HelpsTime Decay If credit premium = [A – (B – A)] – premium If debit premium = [A + (B – A)] – premium Breakeven Increases as the spot price decreasesLoss (B – A) - (debit premium) or + (credit premium)Profit CommentView
- 70. 70 Put Ratio Spread Formation •Sell 2 Puts A & Buy Put B Variant • Sell 2 Puts A, Buy Call B & Short Futures
- 71. 71 Put Ratio Spread Profit Loss AB Net Premium (Credit) Breakeven Short Puts Long Put Max. Profit
- 72. 72 Long Put Very bearishoutlookUse Strike price - premiumBreakeven NoMargin Volatility increase helps the positionVolatility HurtsTime Decay Limited to the premium paidLoss Unlimited, Increases as the spot price decreasesProfit CommentView
- 73. 73 Long Put –Payoff Premium Strike Price Break Even Profit Loss
- 74. 74 Long Put -Variant Protective Call • Sell Underlying or Sell Futures, and Buy Call (Upside Risk is hedged) Max. Loss: If Futures < Strike = (Strike – Futures) + Premium If Futures > Strike = Premium – (Futures - Strike) Breakeven = Call Strike - Max. Loss Margin required for position in Futures
- 75. 75 Long Put –Variant PayoffProfit Long Put Long Call Futures Loss Max. Loss Strike Price Break Even
- 76. 76 Put Ratio Backspread YesMargin Volatilityincrease helps the positionVolatility Market is near A and outlook is bearishUse HurtsTime Decay A - LossBreakeven (B – A) + (debit premium) or – (credit premium)Loss Increases as the spot price decreasesProfit CommentView
- 77. 77 Put Ratio Backspread Formation •Buy 2 lower strike (A) puts & Sell a higher strike (B) put. Variant • Buy 2 lower strike (A) puts, Sell a higher strike (B) call & Long Futures
- 78. 78 Put Ratio Backspread– Payoff Profit Loss A B Net Premium (Credit)Breakeven Short Put Long Puts Max. Loss
- 79. 79 Short Futures Very bearishoutlookUse Sell price + BrokerageBreakeven YesMargin No impactVolatility No impactTime Decay Increases as the spot price increasesLoss Increases as the spot price decreasesProfit CommentView
- 80.
- 81. 81 Short Futures –Variant Formation • Buy Put A & Sell Call A Going Short at A + Call Premium – Put Premium
- 82. 82 Short Futures –Variant PayoffProfit Loss A Short Call Long Put
- 83. 83 Short Semi Futures BearishoutlookUse Call Strike (B) + Premium credit or Put Strike (A) - Premium debit Breakeven YesMargin NeutralVolatility Mixed – Hurts for Long put and helps for Short call Time Decay Increases as the spot price increasesLoss Increases as the spot price decreasesProfit CommentView
- 84. 84 Short Semi Futures Formation •Buy Put A & Sell Call B Variant • Buy Put A, Sell Put B & Short Futures
- 85. 85 Short Futures –PayoffProfit Loss Long Put Short Call A B Breakeven
- 86. 86 Bear Put Spread BearishoutlookUse Strike B - Max. LossBreakeven YesMargin NeutralVolatility Mixed – Hurts for long put and helps for short putTime Decay Limited, Max. Loss = Net PremiumLoss Limited, Max. Profit = (B – A) - Net PremiumProfit CommentView
- 87. 87 Bear Put Spread Formation •Buy Put B and Sell Put A Variant • Buy Call B, Short Futures & Sell Put A
- 88. 88 Bear Put Spread– PayoffProfit Loss Long Put Short Put A B Breakeven
- 89. 89 Bear Call Spread BearishoutlookUse Strike B - Max. LossBreakeven YesMargin NeutralVolatility Mixed – Hurts for long call and helps for short call Time Decay Limited, Max. Loss = (B – A) – Net PremiumLoss Limited, Max. Profit = Net PremiumProfit CommentView
- 90. 90 Bear Call Spread Formation •Buy Call B & Sell Call A Variant • Buy Call B, Sell Put A & Short Futures
- 91. 91 Bear Call Spread– Payoff Profit Loss Long Call Short Call A Breakeven B
- 92. 92 Short Call Bearish outlookUse Strikeprice + PremiumBreakeven YesMargin Volatility decrease helps the positionVolatility HelpsTime Decay Unlimited, increases as the spot price increasesLoss Limited to the premium receivedProfit CommentView
- 93. 93 Short Call –Payoff Profit Loss Breakeven Strike Premium received
- 94. 94 Short Call –Variant Covered Put • Short Futures, and Sell Put A Max. Profit: If Futures < Strike = Premium - (Strike – Futures) If Futures > Strike = Premium + (Futures – Strike) Breakeven = Put Strike + Max. Profit
- 95. 95 Short Call –Variant PayoffProfit Loss Breakeven Strike A Premium received Short Futures Short Put
- 96.