4 Options Straddles & Spreads

Question 1

Combination

Answer 1

2 options that aren’t a straddle or spread

Question 2

Straddle

Answer 2

by or sell 1 call & 1 put

same strike price & expiration

1 XYZ Jun 50 call 5

1 XYZ Jun 50 put 4

Question 3

Long Straddle

why?

Answer 3

Buy (long) call & put

Expects volatiltiy - not sure what direction

risk is stock won’t move

ex -news release changes in co., stock could shoot way up or way down

Question 4

Long Straddle

calculate breakeven

1 ABC Jun 50 call @ 3

1 ABC Jun 50 put @ 2

Answer 4

Pemium = 3 + 2 = 5

Breakevens 45 & 55

Question 5

Spread

Answer 5

buy & sell

2 calls or

2 puts

Question 6

Spread

Max Gain + Max Loss = ?

Answer 6

Spread Difference

B Jan 60 c 3

S Jan 50 c 5

Spread Diff = 60-50 = 10

Question 7

Spread

B Jan 50 C 5

S Jan 60 C 3

Calculate

Max Loss & Max Gain

Answer 7

Question 8

Spread

B Jan 60 C 3

S Jan 50 C 5

Calculate

Max Loss & Max Gain

Answer 8

Question 9

Debit or Credit Spread

How to determine

Answer 9

Find Value

? Are you buying (- debit) or selling (+ credit)

B Jan 50 c 5

S Jan 60 c 3

Most valuable - 50 call

Buying or Selling - buying - debit spread

Question 10

Debit or Credit Spread

B 1 ABC Apr 55 c

S 1 ABC Apr 50 c

Answer 10

credit spread

1. find value - 50 call
2. buy or sell? sell, make money, + credit

Question 11

Debit Spread

How do you make money?

Answer 11

when both options are exercised

Question 12

Credit Spread

How do you make money?

Answer 12

when both options expire

Question 13

Bear or Bull Spread?

L ABC Oct 50 c @ 4

S ABC Oct 60 c @ 1

Answer 13

Because

U you are

Long the

Lower

Strike

lower strike = 50

long or short? = Long

Bull

Question 14

Bear or Bull Spread?

S ABC Mar 45 put @ 4

L ABC Mar 50 put @ 7

Answer 14

Because

U you are

Long the

Lower

Strike

lower strike = 45

long or short? = short

BEAR