Assignment strategies PDF

Preview

Summary

Download Assignment strategies PDF

Description

Option Trading Strategies

1. 2. 3. 4. 5. 6.

7.

8. 9. 10.

11.

12.

13.

14.

15.

16.

Covered Call writing: Writing a call when one holds the asset. Useful when the market is stagnant and no upside price movement is expected, so one can earn some premium. Writing a put when no downside movement is expected to earn some premium. Speculation with Options: Buy a call when the market is bullish and write a put when the market is bearish. Long Straddle: Buy a call and buy a put at the same exercise price and same expiration day. Useful when a huge price change may happen on either side. Short Straddle: Write a call and write a put at the same exercise price and same expiration date. Useful when the expected price change is range bound. Long Strangle: Similar to Long Straddle, except the strike prices for call and put are different. For a long strangle, the strike price of the call is higher than the spot price and the strike price of the put is lower than the spot price. Useful when a huge price change may happen on either side. Short Strangle: Similar to Short Straddle, except the strike prices for call and put are different. For a short strangle, the strike price of the call is higher than the spot price and the strike price of the put is lower than the spot price. Useful when the expected price change is range bound. Strip: Buy two calls and one put. Useful when the volatility is expected to be higher on the up side. Strap: Buy two puts and one call. Useful when the volatility is expected to be higher on the down side. Bull Spread using call: Useful when one is moderately bullish about the market. Buy a call at X1 and write a call at a higher strike price X2. That means X2>X1. It is called a debit spread as there is an initial cash outflow. Bull Spread using put: Useful when one is moderately bullish about the market. Buy a put at X1 and write a put at a higher strike price X2. That means X2>X1. It is called a credit spread as there is an initial cash inflow. Bear Spread using call: Useful when one is moderately bearish about the market. Buy a call at X1 and write a call at a lower strike price X2. That means X1>X2. It is called a credit spread as there is an initial cash inflow. Bear Spread using put: Useful when one is moderately bearish about the market. Buy a put at X1 and write a put at a higher strike price X2. That means X2>X1. It is called a debit spread as there is an initial cash outflow. Butterfly Spread using call: one long call at X1, two short calls at X2 and another long call at X3, where X1...