Option Strategies: Bull and Bear Spread..... Bull and Bear Spread Presentation is made free. Package of Presentation.... For Finance ppts

1. Option Strategies…. Bullish ….Chapter 2
Bull Spread
Bear Spread
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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:
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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
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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
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5. Summary …Investopedia
An options strategy 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.
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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
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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
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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
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9. Summary …Investopedia
A type of 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)).
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10. WealthHandHolding…..
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