Options trading strategies are briefly discussed, Exercises of Finance

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OPTIONS TRADING STRATEGIES

What is Option :

• (^) An Option is a contract where buyer of the

option pays the premium and has right the to

buy or sell underlying asset at a given price

and seller of the option receives the premium

and has an obligation to sell or buy the

underlying asset

Option Trading Strategies

• (^) Bullish Strategies
• (^) Bearish Strategies
• (^) Neutral Strategies

Bullish strategies

• (^) Long Call
• (^) Short Put
• (^) Bull put spread – short put with higher strike price and buy put with lower strike price
• (^) Long call ladder strategy – Buy one ITM call option and sell one ATM call option and one OTM call option
• (^) Covered Call – long future/stock and sell call option
• (^) Protective put – long futures/stock and buy put option

Neutral Strategies

• (^) Short Strangle – Selling OTM call option and OTM put option simultaneously with same expiry date
• (^) Short Stradle – Selling ATM call option and ATM put option with the same expiry date
• (^) Long Call Butterfly – buying one ITM call, 1 OTM call and selling 2 ATM call options simultaneously with same expiry
• (^) Long call calendar spread – Selling near month ATM/OTM call option and buying far month ATM/OTM call option