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Speakers: Beesham Lal Umar Farooq

Speakers: Beesham Lal Umar Farooq. Options strategies. Introduction. Strategy is formed by a ppropriate mixture of put and call options depending on preferences of trader Strategy is commonly used to make profit from movements in prices

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Speakers: Beesham Lal Umar Farooq

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  1. Speakers: Beesham Lal Umar Farooq Options strategies

  2. Introduction • Strategy is formed by appropriate mixture of put and call options depending on preferences of trader • Strategy is commonly used to make profit from movements in prices • Strategy can also be used by an individual for hedging and insurance

  3. Market circumstances • Bullish • Bearish • Neutral-bullish in volatility • Neutral-bearish in volatility

  4. Bullish strategies

  5. Long call • Long 1 at-the-money call option • Almost certain that price would move upward

  6. Bull call spread • Long 1 in-the-money call & short 1 out-of-money call • Prices are expected to go up moderately • Reduces cost by forgoing unlimited profit

  7. Call back spread • Short 1 in-the-money call & long 2 out-of-money call • Expects big move in prices of high volatile security • Cost can be zero with proper choice of calls

  8. Bearish strategies

  9. Long put • Long 1 at-the-money put option • Almost certain that price would move downward

  10. Bear put spread • Short 1 in-the-money put & long 1 out-of-money put • Prices are expected to go down moderately • Reduces cost by forgoing some profit potential

  11. Put back spread • Short 1 in-the-money put & long 2 out-of-money put • Expects big downward move in prices of high volatile assets • Cost can be zero with proper choice of puts

  12. Neutral strategies

  13. Short strangle • Short 1 out-of-money put & short 1 out-of-money call • Expects prices to remain stable with bearish in volatility • Unlimited loss if got betrayed by expectations

  14. Short butterfly spread • Short 1 out-of-money put, long 1 at-the-money put, long 1 at-the-money call and short 1 out-of-money call • Expects prices to remain stable with bullish in volatility • Unlimited loss if got betrayed by expectations

  15. Insurance strategies

  16. Pay later strategy • Holds underlying asset, long 2 put options with same strike price & short 1 put option • Net premium is zero • Needs insurance if price goes down but wants full profit if prices move up • Pays for insurance only if it is needed

  17. Conclusion • An individual can combine different options depending on his needs • Trader can lose a lot of money if her expectations are not up to date

  18. QUESTIONS

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