Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long...
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Transcript of Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long...
![Page 1: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/1.jpg)
Option StrategiesOption Strategies
![Page 2: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/2.jpg)
Option strategiesOption strategies
Call optionLong Call
Naked call
Covered call
Put optionLong put
Naked put
Protective put
![Page 3: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/3.jpg)
A long callA long call
Assume we buy one Exxon 26 December $80 call.
C0 = $3
At expiration, our profit/loss will depend on the stock price.
![Page 4: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/4.jpg)
AnalysisAnalysis
Profit/loss is a function of stock price at expiration and the original option premium
Profit/Loss = max [0, (ST-E)] - C0
Break-even stock price = E + C0
We make a profit when the option is in-the-money, and we lose when the
option is out-the-money.
![Page 5: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/5.jpg)
Profit/Loss at expiration: Long callProfit/Loss at expiration: Long call
Price at expiration, ST Call value at expiration Profit/loss
$0 0 -$3
$40 0 -$3
$60 0 -$3
$76 0 -$3
$77 0 -$3
$78 0 -$3
$79 0 -$3
$80 0 -$3
$81 1 -$2
$82 2 -$1
$83 3 0
$84 4 $1
$90 10 $7
$100 20 $17
![Page 6: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/6.jpg)
S
profit
$80
-$3
$83
Profit at expiration from a long callProfit at expiration from a long call
![Page 7: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/7.jpg)
Naked callNaked call
Assume we sell one Exxon 26 December $80 call.
C0 = $3
![Page 8: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/8.jpg)
AnalysisAnalysis
Profit/loss is a function of stock price at expiration and the original option premium
Profit/Loss = - max [0, (ST-E)] + C0
Break-even stock 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.
![Page 9: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/9.jpg)
Profit/Loss at expiration: Naked callProfit/Loss at expiration: Naked call
Price at expiration, ST Call value at expiration Profit/loss
$0 0 $3
$40 0 $3
$60 0 $3
$76 0 $3
$77 0 $3
$78 0 $3
$79 0 $3
$80 0 $3
$81 1 $2
$82 2 $1
$83 3 0
$84 4 -$1
$90 10 -$7
$100 20 -$17
![Page 10: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/10.jpg)
S
profit
$80
$3
$83
Profit at expiration from a naked callProfit at expiration from a naked call
![Page 11: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/11.jpg)
Covered callCovered call
Assume we have purchased one Exxon share for $78 and at the same time we sell one Exxon 26 December $80 call for $3
![Page 12: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/12.jpg)
AnalysisAnalysis
Profit/loss is a function of stock price at expiration, The original stock price, and the original option premium
Profit/Loss = (ST- S0) + [C0- max(0, ST - E)]
Break-even stock 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
![Page 13: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/13.jpg)
Profit/Loss at expiration: Covered callProfit/Loss at expiration: Covered call
Price atexpiration, ST
Call value atexpiration
ST-S0 C0-C Profit/loss
$0 0 -$78 $3 -$75
$40 0 -$38 $3 -$35
$60 0 -$18 $3 -$15
$76 0 -$2 $3 $1
$77 0 -$1 $3 $2
$78 0 0 $3 $3
$79 0 $1 $3 $4
$80 0 $2 $3 $5
$81 1 $3 $2 $5
$82 2 $4 $1 $5
$83 3 $5 0 $5
$84 4 $6 -$1 $5
$90 10 $12 -$7 $5
$100 20 $22 -$17 $5
![Page 14: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/14.jpg)
Profit at expiration from a covered callProfit at expiration from a covered call
S
profit
$80
$75
$5
-$75
![Page 15: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/15.jpg)
Option strategiesOption strategies
Call optionCall optionLong call Long call
Naked callNaked call
Covered callCovered call
Put optionPut optionLong putLong put
Naked putNaked put
Protective putProtective put
![Page 16: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/16.jpg)
Long putLong put
Assume we buy one Exxon 26 December $80 put.
P0 = $4
![Page 17: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/17.jpg)
AnalysisAnalysis
Profit/Loss = max [0, (E- ST)] - P0
Break-even stock price = E - P0
![Page 18: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/18.jpg)
Profit/Loss at expiration: Long putProfit/Loss at expiration: Long put
Price at expiration (ST) Put value at expiration (P) Profit/loss
$0 $80 $76
$40 $40 $36
$60 $20 $16
$76 $4 $0
$77 $3 -$1
$78 $2 -$2
$79 $1 -$3
$80 0 -$4
$81 0 -$4
$82 0 -$4
$83 0 -$4
$84 0 -$4
$90 0 -$4
$100 0 -$4
![Page 19: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/19.jpg)
S
profit
$80
$3$76
Profit at expiration from a long putProfit at expiration from a long put
$76
![Page 20: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/20.jpg)
Naked PutNaked Put
Assume you sell one Exxon 26 December $80 put. P0 = $4
![Page 21: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/21.jpg)
AnalysisAnalysis
Profit/Loss = - max [0, (E- ST)] + P0
Break-even stock price = E - P0
![Page 22: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/22.jpg)
Profit/Loss at expiration: Naked putProfit/Loss at expiration: Naked put
Price at expiration (ST) Put value at expiration (P) Profit/loss
$0 $80 -$76
$40 $40 -$36
$60 $20 -$16
$76 $4 $0
$77 $3 $1
$78 $2 $2
$79 $1 $3
$80 0 $4
$81 0 $4
$82 0 $4
$83 0 $4
$84 0 $4
$90 0 $4
$100 0 $4
![Page 23: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/23.jpg)
Profit at expiration from a naked put
S
profit
$80
$4
$76
-$76
![Page 24: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/24.jpg)
Protective putProtective put
Assume we have purchased one Exxon share for $78 and at the same time we buy one Exxon 26 December $80 put for
$4.
![Page 25: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/25.jpg)
AnalysisAnalysis
Profit/Loss = (ST- S) + [max(0, E- ST) - P0]
Break-even stock 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
![Page 26: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/26.jpg)
Profit/loss at expiration: Protective putProfit/loss at expiration: Protective put
Price at expiration (ST) Put value at expiration (P) ST-S0 P-P0 Profit/loss
$0 $80 -$78 $76 -$2
$40 $40 -$38 $36 -$2
$60 $20 -$18 $16 -$2
$76 $4 -$2 $0 -$2
$77 $3 -$1 -$1 -$2
$78 $2 0 -$2 -$2
$79 $1 $1 -$3 -$2
$80 0 $2 -$4 -$2
$81 0 $3 -$4 -$1
$82 0 $4 -$4 0
$83 0 $5 -$4 $1
$84 0 $6 -$4 $2
$90 0 $12 -$4 $8
$100 0 $22 -$4 $18
![Page 27: Option Strategies Option strategies Call option Long Call Naked call Covered call Put option Long put Naked put Protective put.](https://reader035.fdocuments.us/reader035/viewer/2022062304/56649f215503460f94c39634/html5/thumbnails/27.jpg)
S
profit
$80
-$2
$82
Profit at expiration from a protective put