[PDF] - Thought for the session PDF Document, free download

SLIDE 1

Thought for the session
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Outline

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SLIDE 2

4

Option fundamentals

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Option fundamentals

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Option pay-offs (at maturity)

Long call - Bullish Short call - bearish Long put - bearish Short put - bullish St St St St

Payoff Payoff Payoff Payoff

SLIDE 3

7

Assumptions

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Hedging vs. strategies

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Why options trading strategies?

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SLIDE 4

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Option values at different times before maturity: Long call

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Profit

X

3 months before 1 month before at expiry (only Intrinsic Value remains)

Explaining the previous graph

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Trading strategies – main categories

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SLIDE 5

Covered short call

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Covered call (= S put)

short call long position in the share Loss call X

Covered long put

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Profit

protective put (= L call)

long put long share

put X

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14

Other combinations

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SLIDE 6

Spreads – Bull spread example

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Spreads – Bull spread example

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Two options of same type (vertical spreads)

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Profit

sell call buy call

bull spread

X1 X2

St

SLIDE 7

Two options of same type (vertical spreads cont.)

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19

Profit

sell call buy call

bear spread

St

X1 X2

20

More vertical spreads (with 2 options)

bull spread

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More spreads

bear spread

SLIDE 8

(Vertical) spreads using four options of same type

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22

Profit

sell 2 calls

long call 1

butterfly spread

long call 2 55 65 60

St

Combinations: buying different types of

ption (or selling different types)

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23

Profit long put long call

bottom straddle

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Combinations: put & call cont.

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Profit MP

top straddle

SLIDE 9

Combinations: put & call

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25

Profit long put long call strangle

50 60

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Hedging with options: The collar

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Collars cont.

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SLIDE 10

Collars cont.

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Collar construction

29

Profit short call long share 90 put X 130 call X 100 share X long put

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5

St

Collar payoff

30

Profit

short call long share

90 130 100

long put 5

5

30

10

St

SLIDE 11

Option strategies

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31