Option Strategies Flashcards
What is a covered call?
A covered call strategy combines a long position in a stock and a short position in a call. This strategy gives up upside on the stock but earns income via the option premium.
Covered calls are used for .. ?
- Income Generation
- Improving Performance
- Target Price Realization
What is a protective put?
A protective put strategy combines a long position in a stock and a long position in a put.
What is a straddle ?
A straddle strategy combines a long call and a long put on an asset with the same strike price . Investors expect a sharp large movement but is unsure of the direction. A straddle loses if the stock price remains unchanged.
What is a collar strategy?
A collar strategy combines a covered call and a protective put. The strategy involves the selling of a call that has an equal premium to the put, resulting in a no cost collar. The strategy limits both the upside and downside.
What is a bull spread?
A bull call spread combines a long call with a low exercise price and short call with a high exercise price. The strategy provides limited upside with limited downside.
What is a bear spread ?
A bear put spread combines a long put with a high exercise price and short put with a high exercise price. This provides limited upside if the value of the underlying asset falls.
Increase in _____ and _____ causes a decrease in the value of a call and an increase in the value of a put.
Increase in exercise price and benefit of holding asset causes a decrease in the value of a call and an increase in the value of a put.
What does the “Put-Call Parity” function state?
That the payoff of a fiduciary call and a protective put should be the same.
