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Option Strategies

Option Strategies. Option strategies. Call option Long Call Naked call Covered call Put option Long put Naked put Protective put. A long call. Assume we buy one CAD 26 December USD 0.80 call. C 0 = USD 0.03 At expiration, our profit/loss will depend on the CAD price. Analysis.

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Option Strategies

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  1. Option Strategies

  2. Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put

  3. A long call Assume we buy one CAD 26 December USD 0.80 call. C0 = USD 0.03 At expiration, our profit/loss will depend on the CAD price.

  4. Analysis Profit/loss is a function of CAD price at expiration and the original option premium Profit/Loss = max [0, (ST-E)] - C0 Break-even CAD price = E + C0 We make a profit when the option is in-the-money, and we lose when the option is out-the-money.

  5. Profit/Loss at expiration: Long call

  6. -USD0.03 Profit at expiration from a long call profit USD 0.80 USD 0.83 S

  7. Naked call Assume we sell one CAD 26 December USD 0.80 call. C0 = USD 0.03

  8. Analysis Profit/loss is a function of CAD price at expiration and the original option premium Profit/Loss = - max [0, (ST-E)] + C0 Break-even CAD price = E + C0 We make a profit when the option is out of the money, and we lose when the option is in the money.

  9. Profit/Loss at expiration: Naked call

  10. USD 0.03 Profit at expiration from a naked call profit USD 0.83 USD 0.80 S

  11. Covered call Assume we have purchased one CAD for USD 0.78 and at the same time we sell one CAD 26 December USD 0.80 call for USD 0.03

  12. Analysis Profit/loss is a function of CAD price at expiration, The original CAD price, and the original option premium Profit/Loss = (ST- S0) + [C0- max(0, ST - E)] Break-even CAD price = S0 - C0 We make a profit when the option is in the money, but the profit is limited. The largest loss we can incur = - S0 + C0

  13. Profit/Loss at expiration: Covered call

  14. USD 0.5 -USD0.75 Profit at expiration from a covered call profit USD 0.75 S USD 0.80

  15. Option strategies Call option Long call Naked call Covered call Put option Long put Naked put Protective put

  16. Long put Assume we buy one CAD 26 December USD 0.80 put. P0 = USD 0.04

  17. Analysis Profit/Loss = max [0, (E- ST)] - P0 Break-even CAD price = E - P0

  18. Profit/Loss at expiration: Long put

  19. USD 0.4 Profit at expiration from a long put profit USD 0.76 USD 0.80 S USD 0.76

  20. Naked Put Assume you sell one CAD 26 December USD 0.80 put. P0 = USD 0.04

  21. Analysis Profit/Loss = - max [0, (E- ST)] + P0 Break-even CAD price = E - P0

  22. Profit/Loss at expiration: Naked put

  23. -USD 0.76 Profit at expiration from a naked put profit USD 0.04 USD 0.76 S USD 0.80

  24. Protective put Assume we have purchased one CAD for USD 0.78 and at the same time we buy one CAD 26 December USD 0.80 put for USD 0.04.

  25. Analysis Profit/Loss = (ST- S) + [max(0, E- ST) - P0] Break-even CAD price = S + P0 We lose a limited amount when the put is in the money, but there is no limit to the upside gain when the put is out of the money

  26. Profit/loss at expiration: Protective put

  27. -USD 0.02 Profit at expiration from a protective put profit USD 0.80 USD 0.82 S

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