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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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Presentation on theme: "Trading Strategies Involving Options Chapter 10 1 Options, Futures, and Other Derivatives, 7th Edition, Copyright © John C. Hull 2008."— Presentation transcript:

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

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

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

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

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

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

8 Options, Futures, and Other Derivatives 7 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)

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

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

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

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

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

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

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


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