1. Module 7: Option Positions and Strategies
Derivative and Financial Markets Concepts
Module 7: Option Positions and Strategies
Objectives:
To understand different option position and strategy applications
To relate different underlying and option positions
Structure:
Combination Worksheets
Options Positions 2, 3 and 4 [OPTPOS.XLS]
Derivative algebra (+F, +C, -P, +C=+F+P, …)
Discussion
Options 9th: Chapter 12 Options 8th: Chapter 11, pp Options 7th: Chapter 10, pp ,  Options 6th: Chapter 10, pp ,    Options 5th:  Chapter 9, pp ,  Options 4th:  Chapter 8, pp ,
Jointly-developed module licensed to James Bodurtha Copyright Ó Financial Labs, Inc., 1993, 1994, 1995, all rights reserved. Confidential, Proprietary Information of Financial Labs, Inc.

2. Combined Option Positions
Option Positions are created by combining options with underlying positions and with other options.
The variations of such combinations are unlimited.
Explore the possible combinations and their purposes using the following worksheets. As you work through them do the following:
· Think through the profit at maturity of the combination and try to explain it verbally.
· Calculate the profit at maturity of each component of the position and then net them together.
· Plot a graph of each component and the net position.
After you have completed the position to your satisfaction be sure to note the following on your worksheet:
· What market view is appropriate for the position? (up, not up, down, not down, stable, volatile, sure, unsure, other)
· Is the purpose insurance, yield (income) enhancement, or trading profits?
· Does the combination have a commonly accepted name (that you know)?

3. Must-do Combos
Module summary tables - page 5: 1-8, page 24: 9-10, page 32: 11-14, page 42: marked with *; (page # listed).

4. Combinations of Two Positions with at-the-money options

5. Combinations of Two Positions
Summary Checklist
Combinations of Two Positions
at-the-money options

7. Example
Name: Synthetic Long Call View: Up, unsure Purpose: Trade, insure

23. Combinations with Multiple Option Contracts
Underlying and two of the same at-the-money options

24. Summary Checklist Combinations with Multiple Option Contracts
Underlying and two of same at-the-money options

31. Combinations of Two Forward with “participating” (1/2 and 3/2) at-the-money option positions

32. Combinations of Two Forward with “participating” (1/2 and 3/2) at-the-money option positions

41. Combinations of Three Positions
Underlying with two out-of-the-money options

42. Summary Checklist Combinations of Three Positions
Underlying with two out-of-the-money options

50. Combination Position Summary