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Derivatives Trading Strategies

Derivatives Trading Strategies . Professor André Farber Solvay Business School Université Libre de Bruxelles. Trading strategies. A single option and a stock: covered call, protective put Covered call: S-C Protective put: S+P Spreads: bull, bear, butterfly, calendar

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Derivatives Trading Strategies

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  1. DerivativesTrading Strategies Professor André Farber Solvay Business School Université Libre de Bruxelles

  2. Trading strategies • 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(X1) – C(X2) X1<X2 • Bear: +C(X1) – C(X2) X1>X2 • Butterfly: +C(X1) + C(X3) – 2C(X2) X1<X2<X3 • Calendar: +C(T1)-C(T2) T1>T2 • Combinations: straddle, strips and straps, strangle • Straddle: +C+P • Strip: +C + 2P • Strap: +2C+P • Strangle: +C(X2)+P(X1) X1<X2 Derivatives 09 Strategies

  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 Derivatives 09 Strategies

  4. Covered Call Profit At maturity Immediate Stock Price Derivatives 09 Strategies

  5. Protective Put Derivatives 09 Strategies

  6. Bull Call Spread Derivatives 09 Strategies

  7. Bear Call Spread Derivatives 09 Strategies

  8. Butterfly Derivatives 09 Strategies

  9. Straddle Derivatives 09 Strategies

  10. Strip Derivatives 09 Strategies

  11. Strap Derivatives 09 Strategies

  12. Strangle Derivatives 09 Strategies

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