Options Strategies (Wiley)

Question 1

Long Straddle

Answer 1

Long a Call and a Put of the same month & strike price, to profit on extreme moves up or down.

Max gain is unlimited, Max loss is premiums paid.
Break even is Call plus premiums, or Put minus premiums.

Question 2

Short Straddle

Answer 2

Short a Call and a Put of the same month & strike price, to profit on market stagnation.

Max gain is premiums paid, Max loss is unlimited.
Break even is Call plus premiums, or Put minus premiums.

Question 3

Bull Call Spread

Answer 3

Long a lower Call and Short a higher Call, a debit spread to profit on a rising market.

Max gain is strike spread (what you can make) minus premiums (what you paid), Max loss is premiums paid.
Break even is lower strike plus premiums.

Question 4

Bear Call Spread

Answer 4

Short a lower Call and Long a higher Call, a credit spread to profit on a falling market.

Max gain is premiums, Max loss is strike spread minus premiums.
Break even is lower strike plus premiums.

Question 5

Bull Put Spread

Answer 5

Short a higher Put and Long a lower Put, a credit spread to profit on a rising market.

Max gain is premiums, Max loss is strike spread minus premiums.
Break even is higher strike minus premiums.

Question 6

Bear Put Spread

Answer 6

Long a higher Put and Short a lower Put, a debit spread to profit on a falling market.

Max gain is strike spread minus premiums, max loss is premiums paid.
Break even is higher strike minus premiums.