Trading Strategies Involving Options Chapter 10
Types of  Strategies <ul><li>Take a position in the option and the underlying </li></ul><ul><li>Take a position in 2 or mo...
Positions in an Option & the Underlying  (Figure 10.1, page 22 4 ) Profit S T K Profit S T K Profit S T K Profit S T K (a)...
Bull Spread Using Calls (Figure 10.2, page 22 5 ) K 1 <ul><ul><li>K 2 </li></ul></ul>Profit S T
Bull Spread Using Puts Figure 10.3, page 22 6 K 1 K 2 Profit S T
Bear Spread Using Puts Figure 10.4, page 22 7 K 1 K 2 Profit S T
Bear Spread Using Calls Figure 10.5, page 2 29 K 1 K 2 Profit S T
Box Spread <ul><li>A combination of a bull call spread and a bear put spread </li></ul><ul><li>If all options are European...
Butterfly Spread Using Calls Figure 10.6, page 23 1 K 1 K 3 Profit S T K 2
Butterfly Spread Using Puts Figure 10.7, page 23 2 K 1 K 3 Profit S T K 2
Calendar Spread Using Calls Figure 10.8, page 23 2 Profit S T K
Calendar Spread Using Puts Figure 10.9, page 23 3 Profit S T K
A Straddle Combination Figure 10.10, page 23 4 Profit S T K
Strip & Strap Figure  10.11, page 23 5 Profit K S T Profit K S T Strip Strap
A Strangle Combination Figure 10.12, page 23 6 K 1 K 2 Profit S T
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Chap 10

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Chap 10

  1. 1. Trading Strategies Involving Options Chapter 10
  2. 2. Types of Strategies <ul><li>Take a position in the option and the underlying </li></ul><ul><li>Take a position in 2 or more options of the same type (A spread) </li></ul><ul><li>Combination: Take a position in a mixture of calls & puts (A combination) </li></ul>
  3. 3. Positions in an Option & the Underlying (Figure 10.1, page 22 4 ) Profit S T K Profit S T K Profit S T K Profit S T K (a) (b) (c) (d)
  4. 4. Bull Spread Using Calls (Figure 10.2, page 22 5 ) K 1 <ul><ul><li>K 2 </li></ul></ul>Profit S T
  5. 5. Bull Spread Using Puts Figure 10.3, page 22 6 K 1 K 2 Profit S T
  6. 6. Bear Spread Using Puts Figure 10.4, page 22 7 K 1 K 2 Profit S T
  7. 7. Bear Spread Using Calls Figure 10.5, page 2 29 K 1 K 2 Profit S T
  8. 8. Box Spread <ul><li>A combination of a bull call spread and a bear put spread </li></ul><ul><li>If all options are European a box spread is worth the present value of the difference between the strike prices </li></ul><ul><li>If they are American this is not necessarily so . ( S ee Business Snapshot 10.1) </li></ul>
  9. 9. Butterfly Spread Using Calls Figure 10.6, page 23 1 K 1 K 3 Profit S T K 2
  10. 10. Butterfly Spread Using Puts Figure 10.7, page 23 2 K 1 K 3 Profit S T K 2
  11. 11. Calendar Spread Using Calls Figure 10.8, page 23 2 Profit S T K
  12. 12. Calendar Spread Using Puts Figure 10.9, page 23 3 Profit S T K
  13. 13. A Straddle Combination Figure 10.10, page 23 4 Profit S T K
  14. 14. Strip & Strap Figure 10.11, page 23 5 Profit K S T Profit K S T Strip Strap
  15. 15. A Strangle Combination Figure 10.12, page 23 6 K 1 K 2 Profit S T

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