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Published byPhilip Campen Modified over 10 years ago
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10.1 Trading Strategies Involving Options Chapter 10
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10.2 Positions in an Option & the Underlying Buy or sell call Buy or sell put buy or short sell stock buy (lend at) or sell (borrow at) risk-free bond (rate)
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10.3 Trading Strategies Involving Options Take a position in the option & the underlying Spread: Position in 2 or more options of the same type Combination: Position in a mixture of calls & puts
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10.4 Payoff for Put Option X x buy sell STST -X Cost = p Cost = -p
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10.5 Payoff for Call Option X x buy sell STST Cost = c Cost = -c
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10.6 Payoff for Stock buy STST sell Cost = S Cost = -S
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10.7 Payoff for Investing or Borrowing PV(X) in Risk-Free Bond buy sell STST X -X Cost = Xe -rT Cost = -Xe -rT
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10.8 Method Determine cost of portfolio Draw payoff pattern for each position Add patterns together to obtain payout pattern Subtract cost of portfolio to obtain profit pattern
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10.9 Write a Covered Call X sell call STST buy stock X Cost = S - c
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10.10 Profit Pattern for Covered Call X STST X Cost = S - c X-S+c -S+c
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10.11 Payoff for Protective Put X x STST Cost = S + p
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10.12 Profit Pattern Protective Put x STST Cost = S + p X-S-p S+p X
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10.13 Bull Spread Buy 1 call and sell 1 call at higher strike buy sell STST X1X1 Cost = c1 - c2 > 0 X 2 -X 1 X2X2
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10.14 Profit Pattern for Bull Spread STST X 2 -X 1 -c1+c2 -c1+c2
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10.15 Bear Spread Sell 1 call and buy 1 call at higher strike buy sell STST X1X1 Cost = c1 - c2 < 0 X 2 -X 1 X2X2
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10.16 Profit Pattern for Bear Spread STST X1X1 Cost = c1 - c2 < 0 X2X2
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10.17 Buy a Straddle Buy 1 call and 1 put at same strike X Cost = c + p X -p-c X-p-c X+p+c profit payout
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10.18 Butterfly Spread Buy 1 call at X 1, sell 2 calls at X 2, buy 1 call at X 3 m = +1 m = - 2 m = -1 Cost = c1 - 2c2 + c3 X1X1 X2X2 X3X3 m = 0
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10.19 Butterfly Spread Buy 1 call, sell 2 calls, buy 1 call Cost = c1 - 2c2 + c3 X 2 -X 1 payoff profit cost
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10.20 Bull Spread Using Calls Figure 10.2 X1X1 X2X2 Profit STST
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10.21 Bull Spread Using Puts Figure 10.3 X1X1 X2X2 Profit STST
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10.22 Bear Spread Using Calls Figure 10.4 X1X1 X2X2 Profit STST
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10.23 Bear Spread Using Puts Figure 10.5 X1X1 X2X2 Profit STST
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10.24 Butterfly Spread Using Calls Figure 10.6 X1X1 X3X3 Profit STST X2X2
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10.25 Butterfly Spread Using Puts Figure 10.7 X1X1 X3X3 Profit STST X2X2
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10.26 A Straddle Combination Figure 10.10 Profit STST X
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10.27 Strip & Strap Figure 10.11 Profit XSTST XSTST StripStrap
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10.28 A Strangle Combination Figure 10.12 X1X1 X2X2 Profit STST
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10.29 Summary Write covered call: buy stock sell call Protective put: buy stock and buy put Bull spread: buy X 1 call and sell X 2 call Bear spread: opposite of bull Buy Straddle: buy X call and buy X put Sell Straddle: opposite of buy straddle Strangle: buy X 1 put and buy X 2 call Butterfly spread: buy 1 X 1 call, sell 2 X 2 calls, and buy 1 X 3 call
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10.30 Payoff Table Identify critical price ranges For each position determine payoff in each critical range Sum payoffs across each critical range
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10.31 Example: Straddle Payoff Action:S T < XS T X Buy Call0S T - X Buy PutX - S T 0 PortfolioX - S T S T - X
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