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Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull 2005 10.1 Trading Strategies Involving Options Chapter 10.

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Presentation on theme: "Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull 2005 10.1 Trading Strategies Involving Options Chapter 10."— Presentation transcript:

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

2 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)

3 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)

4 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)

5 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

6 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

7 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

8 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

9 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)

10 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

11 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

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

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

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

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

16 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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