Option Strategies Flashcards
Synthetic long Forward/Future
+) Long call + Short Put
Synthetic Put and Call
Put and call with opposite position
Covered Call
Who own share and sell a call
Protective put
Who own asset and long put option
Synthetic short forward/futures
Short call + Long put
Synthetic long put
Short forward/futures + Long call
Synthetic long call
Long forward/futures + Long put
Covered call
Long underlying + Short call
+) VT = ST − Max(0, ST − X)
+) Π = ST − Max(0, ST − X) − S0 + c0
+) Maximum gain = X − S0 + c0
+) Maximum loss = −S0 + c0
+) Breakeven price St∗ = S0 − c0
Investment Objectives òf covered call
+ Yield enhancement
+ Reducing a position at a favorable price
+ Target price realization
Investment Objectives of protective put
Loss protection/upside preservation
Protective put = Long underlying + Long put
VT = ST + Max(0,X − ST)
Π = ST + Max(0, X − ST) − S0 − p0
Maximum gain = ∞
Maximum loss = X − S0 − p0
Breakeven price ST∗ = S0 + p0
Bull spread
= Long call (put) with XL + Short call (put) with XH
+) VT = Max(0, ST − XL) − Max(0, ST − XH)
+) Π = Max(0, ST − XL) − Max(0, ST − XH) − cL + cH
+) Maximum gain = XH − XL − cL + cH
+) Maximum loss = −cL + cH
+) Breakeven price ST∗ = XL + cL − cH
Bear spread
= Short put (call) with XL + Long put (call) with XH
+) VT = −Max(0,XL − ST) + Max(0,XH − ST)
+) Π = −Max(0,XL − ST) + Max(0,XH − ST) + pL − pH
+) Maximum gain = XH − XL + pL − pH
+) Maximum loss = pL − pH
+) Breakeven price ST∗ = XH + pL − pH
Straddle
= Long ATM put with X + Long ATM call with X
+) VT = Max(0,X − ST) + Max(0, ST − X)
+) Π = Max(0,X − ST) + Max(0, ST − X) − c0 − p0
+) Maximum gain = ∞
+) Maximum loss = −c0 − p0
+) Breakeven price ST∗ = X − c0 − p0
+) ST∗ = X + c0 + p0
Collar
= Long underlying + Long put with XL + Short call with XH
+) VT = ST + Max(0,XL − ST) − Max(0, ST − XH)
+) Π = ST + Max(0,XL − ST) − Max(0, ST − XH) −S0 −p0+c0
+) Maximum gain = XH − S0 − p0 + c0
+) Maximum loss = XL − S0 − p0 + c0
+) Breakeven price ST∗ = S0 + p0 − c0
