Investor Strategies Flashcards
What is a bull spread?
A bull spread is an options strategy designed to profit from a rise in the price of the underlying asset. It involves buying an option with a lower strike price and selling an option with a higher strike price. Both options have the same expiration date.
What is a bear spread?
A bear spread is the opposite of a bull spread. It is designed to profit from a decline in the price of the underlying asset. It involves buying an option with a higher strike price and selling an option with a lower strike price. Both options have the same expiration date.
What is a straddle?
A straddle involves buying a call and a put option with the same strike price and expiration date. This strategy is used when an investor expects a large price movement but is unsure of the direction.
What is a strangle?
A strangle is similar to a straddle but uses different strike prices. The investor buys a call option with a higher strike price and a put option with a lower strike price. This strategy is used when the investor expects a large price movement but wants to reduce the upfront cost.
What is a strap?
A strap is a modified straddle where the investor buys two call options and one put option. This strategy is used when the investor expects a large price movement and is bullish.
What is a strip?
A strip is the opposite of a strap, where the investor buys two put options and one call option. This strategy is used when the investor expects a large price movement and is bearish.
What is a synthetic put?
A synthetic put is a strategy that combines a short position in the underlying asset with a long call option. This mimics the payoff of a long put option.
What is a synthetic call?
A synthetic call combines a long position in the underlying asset with a long put option, mimicking the payoff of a long call option.
What is a protective put?
A protective put involves buying a put option to hedge against potential losses in the underlying asset. This strategy is used when the investor wants to protect against downside risk.
What is a covered call?
A covered call involves selling a call option while owning the underlying asset. This strategy is used when the investor expects the asset price to stay flat or decrease slightly.
What does holding a single position mean?
Holding a single position involves buying or selling a single option or underlying asset. This is the simplest strategy and is used when the investor has a strong directional view.
What is a time spread?
A time spread involves buying and selling two options of the same type (calls or puts) but with different expiration dates. This strategy is used when the investor expects a specific price range for the underlying asset.
