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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Trading Strategies Involving Options Chapter 10

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Types of Strategies Take a position in the option and the underlying Take a position in 2 or more options of the same type (A spread) Combination: Take a position in a mixture of calls & puts (A combination)

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Positions in an Option & the Underlying Profit STST X STST X (a) (b) a) Writing a covered call (long stock and short call) b) Short a stock and long call (reverse of writing a covered call)

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Positions in an Option & the Underlying Profit STST X STST X (c)(d) c) Protective put i.e. long stock and long put d) Short put and short stock (reverse of protective put)

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Bull Spread Using Calls (Figure 10.2, page 225) K1K1 K2K2 Profit STST

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Bull Spread Using Puts Figure 10.3, page 226 K1K1 K2K2 Profit STST

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Bear Spread Using Puts Figure 10.4, page 227 K1K1 K2K2 Profit STST

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Bear Spread Using Calls Figure 10.5, page 229 K1K1 K2K2 Profi t STST

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Box Spread A combination of a bull call spread and a bear put spread If all options are European a box spread is worth the present value of the difference between the strike prices If they are American this is not necessarily so. (See Business Snapshot 10.1)

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Butterfly Spread Using Calls Figure 10.6, page 231 K1K1 K3K3 Profit STST K2K2

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Butterfly Spread Using Puts Figure 10.7, page 232 K1K1 K3K3 Profit STST K2K2

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Calendar Spread Using Calls Figure 10.8, page 232 Profit STST K

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Calendar Spread Using Puts Figure 10.9, page 233 Profit STST K

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull A Straddle Combination Figure 10.10, page 234 Profit STST K

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Strip & Strap Figure 10.11, page 235 Profit KSTST KSTST StripStrap

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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull A Strangle Combination Figure 10.12, page 236 K1K1 K2K2 Profit STST

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