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Derivative Strategy

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Published in: Management Subjects
3,345 Views

How to trade options?

Gaurav G / Hyderabad

1 year of teaching experience

Qualification: MBA/PGDM (Great Lakes Institute Of Mgt - 2017), B.Tech/B.E. (VIT Vellore - 2014)

Teaches: BBA Entrance, BBA Subjects, Management Subjects, MBA Entrance, C / C++, GMAT

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  1. DERIVATIVES TRADING STRATEGIES
  2. TRADING STRATEGIES 2. 3. A single option and a stock: covered call, protective put Covered call: S-C Protective put: S+P Spreads: bull, bear, butterfly, calendar Bull: +C(XI) - C(X2) Bear: +cpq) - C(X2) Butterfly: +cpq) + C(X3) - 2C(X2) Calendar: +C(TI Combinations: straddle, strips and straps, strangle Straddle: -pc-I-p Strip: +C + 2P Strap: +2C-pp Strangle: September 14, 2005 2 DERIVATIVES 09 STRATEGIES 12
  3. ANALYZING A STRATEGY Initial cost Maximum profit: limited, unlimited Maximum loss: limited, unlimited Breakeven price: when do you recover initial price Standstill return: quid if stock price does not change? Market outlook: bearish, neutral, bullish Risk posture September 14, 2005 DERIVATIVES 09 STRATEGIES 13
  4. 950 1000 1050 950 1000 1050 Covered call 100.00 50.00 Profit 0.00 -50.00 -100.00 -150.00 -200.00 September 14, 2005 Stock Call Call Call put put put 80 Maturity 0.25 0.25 0.25 0.25 0.25 0.25 Covered call 1 900 price 1 ,ooo.oo 91.02 63.37 42.26 33.92 55.90 84.42 936.63 950 Delta 1.00 0.68 0.55 0.42 -0.32 -0.45 -0.58 0.45 850 1000 1050 1100 1 150 Stock Price At maturity mmediate 120 DERIVATIVES 09 STRATEGIES 14
  5. Stock Call Call Call put put put 950 1000 1050 950 1000 1050 Maturity 0.25 0.25 0.25 0.25 0.25 0.25 Prot.put 200.00 150.00 100.00 50.00 0.00 80 -50.00 -100.00 September 14, 2005 850 900 Prot.put 1 1 950 Price 1 ,ooo.oo 91.02 63.37 42.26 33.92 55.90 84.42 1055.90 1000 Delta 1.00 0.68 0.55 -0.32 -0.45 -0.58 0.55 11 00 1150 120 DERIVATIVES 09 STRATEGIES 15
  6. 950 1000 1050 950 1000 1050 Maturity 0.25 0.25 0.25 0.25 0.25 Price Stock Call Call Call put put put Bull spread o 1 Bull spread 60.00 40.00 20.00 0.00 80 -20.00 -40.00 -60.00 September 14, 2005 850 0.25 900 950 00 1 ,ooo.oo 91.02 63.37 42.26 33.92 55.90 84.42 48.76 1050 1100 Delta 1.00 0.68 0.55 0.42 -0.32 -0.45 -0.58 0.26 1150 12 0 DERIVATIVES 09 STRATEGIES 16
  7. Stock Call Call Call put put put 950 1000 1050 950 1000 1050 Maturity 0.25 0.25 0.25 0.25 0.25 0.25 Bear spread Bear spread O 1 10 Price 1 ,ooo.oo 91.02 63.37 42.26 33.92 55.90 84.42 -48.76 1100 Delta 1.00 0.68 0.55 0.42 -0.32 -0.45 -0.58 (0.26) 60.00 40.00 20.00 0.00 -20.00 -40.00 -60.00 September 14, 2005 850 900 950 1050 1150 DERIVATIVES 09 STRATEGIES 17
  8. Maturity Butterfly sp Stock Call Call Call put put put 950 1000 1050 950 1000 1050 0.25 0.25 0.25 0.25 0.25 0.25 95 Price 0 1,000.00 91 .02 63.37 42.26 33.92 55.90 84.42 Butterfly spread 50.00 40.00 30.00 20.00 10.00 0.00 80 -10.00 September 14, 2005 1000 1 -2 1 O O O 50 6.54 11 Delta 1.00 0.68 0.55 0.42 -0.32 -0.45 -0.58 0.00 12 0 DERIVATIVES 09 STRATEGIES 18
  9. Stock Cali Cali Cali put put put Straddle 150.00 100.00 50.00 0.00 80 -50.00 -100.00 -150.00 September 14, 2005 950 1000 1050 950 1000 1050 850 Maturity 0.25 0.25 0.25 0.25 0.25 0.25 00 950 Straddle O 1 1 1000 Price 1 ,ooo.oo 91 .02 63.37 42.26 33.92 55.90 84.42 119.27 1050 110 1150 Delta 1 .oo 0.68 0.55 O. 42 -0.32 —O. 45 -0.58 0.10 12 0 DERIVATIVES 09 STRATEGIES 19
  10. Maturity Stock Cali Cali Cali put put put Strip 250.00 200.00 150.00 100.00 50.00 0.00 8 -50.00 -100.00 -150.00 -200.00 September 14, 2005 950 1000 1050 950 1000 1050 850 Strip o 1 2 1000 Price 1 ,ooo.oo 91.02 63.37 42.26 33.92 55.90 84.42 175.17 1050 1100 Delta 0.68 0.55 0.42 -0.32 -0.45 -0.58 (0.35) 900 0.25 0.25 0.25 0.25 0.25 0.25 950 115 12 0 DERIVATIVES 09 STRATEGIES IIO
  11. Stock Cali Cali Cali put put put Strap 300.00 250.00 200.00 150.00 100.00 50.00 0.00 -50.00 -100.00 -150.00 -200.00 -250.00 September 14, 2005 950 1000 1050 950 1000 1050 50 Maturity 0.25 0.25 0.25 0.25 0.25 0.25 Strap O 2 1 Price 1 ,ooo.oo 91 .02 63.37 42.26 33.92 55.90 84.42 182.64 1000 1050 1 100 1150 Delta 0.68 0.55 0.42 -0.32 -0.45 -0.58 0.65 12 DERIVATIVES 09 STRATEGIES III
  12. Stock Cali Cali Cali put put put Strangle 120.00 100 .oo 80.00 60.00 40.00 20.00 0.00 8 -20.00 -40.00 -60.00 -80.00 -100 .oo September 14, 2005 950 1000 1050 950 1000 1050 850 Maturity 0.25 0.25 0.25 0.25 0.25 0.25 900 Strangle O 1 1 Price 1 ,ooo.oo 91.02 63.37 42.26 33.92 55.90 84.42 76.19 950 1000 1 050 1 100 Delta 0.68 0.55 0.42 -0.32 -0.45 -0.58 0.10 1 150 120 DERIVATIVES 09 STRATEGIES 112

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