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Trading Strategies Involving Options Chapter 10 1 Options, Futures, and Other Derivatives, 7th Edition, Copyright © John C. Hull 2008

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 20082 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 7 th Edition, Copyright © John C. Hull 20083 Positions in an Option & the Underlying (Figure 10.1, page 220) Profit STST K STST K STST K STST K (a) (b) (c)(d)

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 20084 Bull Spread Using Calls (Figure 10.2, page 221) K1K1 K2K2 Profit STST

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 20085 Bull Spread Using Puts Figure 10.3, page 222 K1K1 K2K2 Profit STST

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 20086 Bear Spread Using Puts Figure 10.4, page 223 K1K1 K2K2 Profit STST

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 20087 Bear Spread Using Calls Figure 10.5, page 225 K1K1 K2K2 Profi t STST

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 20088 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 7 th Edition, Copyright © John C. Hull 20089 Butterfly Spread Using Calls Figure 10.6, page 227 K1K1 K3K3 Profit STST K2K2

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 200810 Butterfly Spread Using Puts Figure 10.7, page 228 K1K1 K3K3 Profit STST K2K2

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 200811 Calendar Spread Using Calls Figure 10.8, page 228 Profit STST K

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 200812 Calendar Spread Using Puts Figure 10.9, page 229 Profit STST K

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 200813 A Straddle Combination Figure 10.10, page 230 Profit STST K

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 200814 Strip & Strap Figure 10.11, page 231 Profit KSTST KSTST StripStrap

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Options, Futures, and Other Derivatives 7 th Edition, Copyright © John C. Hull 200815 A Strangle Combination Figure 10.12, page 232 K1K1 K2K2 Profit STST

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