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20 Cards in this Set
- Front
- Back
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Covered Call 1. What is a Covered Call? 2. What is the exposure/expectation on future pricing trying to reduce? 3. Protection? |
1. Long Stock Position + Short Call 2. Expects the stock price will neither increase nor decrease in near future. Reduces overall risk and expected return 3. Limited downside protection. Exchanges upside potential for premium |
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Covered Call 1. Value 2. Profit 3. Max Profit 4. Max Loss 5. Breakeven |
1. VT...................= ST - max(0,ST-X) 2. Profit (VT-V0)..= VT - S0 + c 3. Max Profit.....= X - S0 + c 4. Max Loss.......= S0 - c5. Breakeven ST = S0 - c |
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Protective Put 1. What is a Protective Call? 2. What is the exposure/expectation on future pricing trying to reduce? 3. Protection? |
1. Long Stock Position + Long Put 2. Expects the stock price to decrease. Insurance 3. Provides protection against a decline in value |
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Protective Put 1. Value 2. Profit 3. Max Profit 4. Max Loss 5. Breakeven |
1. VT....................= ST + max(0,X-ST) 2. Profit (VT-V0).. = VT - S0 - p 3. Max Profit......= Unlimited 4. Max Loss........= S0 + p - X 5. Breakeven ST = S0 + p |
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Money Spreads |
Involves buying one option and selling another identical option but with different price or time at Expiration 1. Bull Spread 2. Bear Spread 3. Butterfly spread |
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Bull Call Spreads - to make $ when market goes up |
X1< X2 ----- Call X1 > Call X2 Long Call X1 + Short Call X2 T0 = Initial net outlay of funds VT = Change in market value - net outlay Protection against downside, but limits gains Profit when options expire in-the-money |
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Bull Put Spreads - to make $ when market goes up |
X1< X2 ----- Put X1 < Put X2 Long Put X1 + Short Put X2 T0 = Initial inflow of funds VT = Change in market value + inital inflow Protection against downside, but limits gains Profit when options expire out-of-the-money |
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Bear Call Spread - to make $ when market goes down |
X1<X2 ----- Call X1 > Call X2 Short Call X1 + Long Call X2 T0 = Initial inflow of funds VT = Change in market value + cash inflow Profit when options expire out-of-the-money |
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Bear Put Spread - to make $ when market goes down |
X1<X2 ----- Put X1 < Put X2 Short Put X1 + Long Put X2 T0 = Initial net outlay of funds VT = Change in market value - net outlay Profit when options expire in-the-money |
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Butterfly Spread |
Combination of bull and bear spread |
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Long Butterfly Spread (Calls) Low Volatility Expected |
X1 < X2 < X3 Expect price to remain at this current level Long Call X1 + Long Call X3 + 2x Short Call X2 Cash Outlay at T0 Profit occurs when price is close to the middle exercise price |
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Short Butterfly Spread (Calls) High Volatility Expected |
Short Call X1 + Short Call X3 + 2x Long Call X2 Profit when all are in or out-of-the-money |
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Long Butterfly Spread (Puts) _____Volatility Expected |
Low Volatility Expected X1 < X2 < X3 Expect price to remain at this current level Short Put X1 + Short Put X3 + 2x Long Put X2 Cash Outlay at T0 Profit occurs when price is close to the middle exercise price |
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Short Butterfly Spread (Puts) ____ Volatility Expected |
High Volatility Expeceted Long Put X1 + Long Put X3 + 2x Short Put X2 Profit when all are in or out-of-the-money |
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Collars Combination of ___ |
Combination of calls or puts. Similar to Bull Spread, but Collars hold the underlying |
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Long Straddle ____ Volatility |
High Volatility Long Straddle: Long call X1 + Long Put X1 Profit from upside (unlimited) and downside (large, but limited) |
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Short Straddle ____ Volatility |
Neutral view of volatility Short Straddle: Short Call X1 + Short Put X1 Profit when options are at-the-money |
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1 Strap? 2. Strip? 3. Long Strangle? 4. Short Strangle? |
1. Straddle + call 2. Straddle + put 3. Straddle but with different exercise price 3. Straddle but with different exercise price |
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Box Spreads Long and Short |
Combination of bull spread and bear spread return = PV of mispricing + rf rate Want to take advantage of mispricing, if any Otherwise, return is always at least to rf rate |
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Interest Rate Option Strategies |
pending |
