Options Strategies

Front 1

Long straddle

Back 1

-Buy a call and a put (1:1), with the same expiration and strike.
-A long volatility strategy.

Front 2

Payoff profile: long straddle

Back 2

Reward: call - unlimited, put - substantial
Risk: premium paid
Graph: V

Front 3

Short straddle

Back 3

Write a call and a put (1:1), with the same expiration and strike.

Front 4

Payoff profile: short straddle

Back 4

Reward: premium received
Risk: call - unlimited, put - srike
Graph: upside-down V

Front 5

Covered call writing

Back 5

Simultaneously purchase the underlying and write calls;
Underlying - call

Front 6

Collar

Back 6

Simultaneously purchase puts and write calls, while owning the underlying;
Underlying - call + put

Front 7

Motive: covered call writing

Back 7

Short-term realized returns.

Front 8

Motive: Collar

Back 8

To protect returns;
To lower the cost of insurance.

Front 9

Payoff profile: covered call writing

Back 9

Reward: Strike - underlying + premium received
Risk: Strike - premium received
Graph: upside-down L

Front 10

Payoff profile: collar

Back 10

Reward: strike (call) - underlying + premium received (call) - premium paid (put)
Risk: underlying - Strike (put) + premium received (call) - premium paid (put)
Graph: backward Z

Front 11

Payoff profile: portfolio insurance

Back 11

Reward: underlying - premium paid; unlimited
Risk: premium paid
Graph: backward L

Front 12

Steps in selecting an option strategy

Back 12

1. Forecast a price range for the underlying
2. Calculate implied volatility
3. Estimate option prices, assuming implied volatility is correct.
4. Estimate option prices, assuming implied volatility is incorrect.
5. Determine the risk/reward profile, on a percentage basis.
6. Determine the number of options to buy or sell.

Front 13

Long strangle

Back 13

-Buy a call and a put (1:1), with the same expiration and different strike.
-A long volatility strategy.

Front 14

Payoff profile: long strangle

Back 14

Reward: call - unlimited, put - substantial
Risk: premium paid
Graph: U

Front 15

Short strangle

Back 15

-Sell a call and a put (1:1) with same expiration and different strike.
-A short volatility strategy.

Front 16

Payoff profile: short strangle

Back 16

Reward: premium received
Risk: call - unlimited, put - substantial
Graph: upside-down U

Front 17

Long butterfly - calls

Back 17

-Buy 1call with X(h), buy 1 call with X(l), sell 2 calls with X(m) , all with the same expiration.
-A short volatility strategy.

Front 18

Long butterfly - puts

Back 18

-Buy 1put with X(h), buy 1 put with X(l), sell 2 puts with X(m) , all with the same expiration.
-A short volatility strategy.

Front 19

Payoff profile - long butterfly

Back 19

Reward: premium received
Risk: X(h) - X(l) - premium received
Graph: upside-down V with limit at risk

Front 20

Short butterfly - calls

Back 20

-Sell 1call with X(h), sell 1 call with X(l), buy 2 calls with X(m) , all with the same expiration.
-A long volatility strategy.

Front 21

Short butterfly - puts

Back 21

-Sell 1put with X(h), sell 1put with X(l), buy 2 puts with X(m) , all with the same expiration.
-A long volatility strategy.

Front 22

Payoff profile - short butterfly

Back 22

Reward: X(h) - X(l) - premium paid
Risk: premium paid
Graph: V with limit at premium received

Front 23

Long condor

Back 23

-Sell inner strangle and buy outer strangle with same expiration.
-A short volatility strategy.

Front 24

Long condor - call

Back 24

Buy 2 outer calls, sell 2 inner calls all different strikes with same expiration.
-A short volatility strategy.

Front 25

Long condor - put

Back 25

Buy 2 outer puts, sell 2 inner puts all different strikes with same expiration.
-A short volatility strategy.

Front 26

Short condor - call

Back 26

-Sell 2 outer calls, buy 2 inner calls all different strikes with same expiration.
-A long volatility strategy.

Front 27

Short condor - put

Back 27

-Sell 2 outer puts, buy 2 inner puts all different strikes with same expiration.
-A long volatility strategy.

Front 28

Short condor

Back 28

-Buy inner strangle and sell outer strangle with same expiration.
-A long volatility strategy.

Front 29

Payoff profile: long condor

Back 29

Reward: premium received
Risk: X(h) - X(l)- premium received
Graph: upside-down U with limit at risk

Front 30

Payoff profile:short condor

Back 30

Reward: X(h) - X(l)- premium paid
Risk: premium paid
Graph: upside-down U with limit at risk