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Wednesday, 25 March 2015 20:07

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Option Strategies:

 

Bull Put strategy

 

TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

BUY

P.E.

OTM

61.75

61.50

0.1575

SELL

P.E.

ITM

61.75

62

0.3050

 

Application: - This strategy is adopted when the price of the asset is likely to go up moderately in the near term. The Risk and reward are limited in this strategy.

 

Married Put


TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

 

PUT

ATM

61.75

61.75

0.3475

 

Application:- When traders expect a bullish trend and has already purchased underlying asset at that time this strategy is adopted. This strategy gives maximum return and limited risk.

 

COLLAR STRATEGY


TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

BUY

PUT

OTM

61.75

61.50

0.1575

SELL

CALL

OTM

61.75

62

0.475


Application: - This strategy is used when the option trader has already purchased an asset but safeguards against sudden drop in the prices.

 

Calendar Spread

 

TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

BUY

CALL

OTM

61.75

62.50

0.7925

SELL

CALL

OTM

61.75

62.50

0.2825

 


Application: This strategy is applied when the trader is having a bearish outlook in the near term and near term bearish outlook. It provides a limited profit and limited loss.

 

Bull call strategy:

TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

BUY

Call

ITM

61.75

61

1.2550

SELL

Call

OTM

61.75

63

0.1525

 

Application: An investor can use this strategy when he is expecting bullish trend. It contains two calls with the same expiration but different strikes. Bull call spread is a limited risk limited reward strategy.

Reward: Difference between high strike and low strike minus net premium paid

Risk: Net premium paid

Bear call spread:

TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

BUY

Call

OTM

61.75

63

0.1525

SELL

Call

ITM

61.75

61

1.2550

 

Application: An investor can use this strategy when he is expecting bearish trend. It contains two calls with the same expiration but different strikes. The short call's main purpose is to generate income, whereas the long call simply helps limit the upside risk.  Bear call spread is a limited risk and limited reward strategy.

Reward: Net premium received

Risk: Difference between high strike and low strike minus net premium received


Long straddle:

TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

BUY

CALL

ATM

63

63

0.1525

BUY

PUT

ATM

63

63

0.9625

 

Application: This strategy works best when currency would make a big move either up or down. Long straddle strategy is a limited risk and high reward strategy.

Reward: Unlimited

Risk: Premiums paid

Long strangle:

TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

BUY

CALL

OTM

61.75

64

0.0375

BUY

PUT

OTM

61.75

59

0.0050

 

Application: Long strangle works best when an investor is expecting a sharp move either up or down in near term.

Reward: Unlimited

Risk:Premiums paid

Long call butterfly:

TREND

OPTION TYPE

CONDITION

SPOT

EXERCISE/STRIKE

PREMIUM

SELL

CALL

ATM

61.75

61.75

0.6000

SELL

CALL

ATM

61.75

61.75

0.6000

BUY

CALL

ITM

61.75

60

2.3075

BUY

CALL

OTM

61.75

63.5

0.0700

 

Application: Long call butterfly gives best outcome when an investor is expecting very little movement in the price. Its a limited loss limited reward strategy.

Reward: High strike price minus middle strike price minus net premium paid

Risk: Net premium paid

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