8/28/2012

TRADING STRATEGIES OF OPTIONS.

Options are used in combination to benefit from unpredictable movement in the prices of underlying assets. Certain combinations which are called option strategies are listed below.

OPTION STRATEGIES.
K. Parmar Parmar. .

STRADDLE: Buy/Sell call & put having same expiry at same strike price near So. STRANGLE: Buy/Sell call at higher X & Buy/Sell put at lower X having same expiry. STRAP: Long on 2 calls & 1 put having same expiry near So. STRIP: Long on 1 call & 2 puts having same expiry near So.
2

BULLISH VERTICLE SPREAD: Buy an option with lower X & sell that option with higher X having same expiry. BEARISH VERTICLE SPREAD: Buy an option with higher X & sell that option with lower X. BOX SPREAD: It is a combination of bull & bear spreads with calls & puts respectively with the same set of X. It involves Buying call at lower X, selling call at higher X, buying put at higher X and selling put at lower X. TIME SPREAD: Buy/Sell long term option & sell/buy short term option having same X near So.
3

BUTTERFLY SPREAD: Buy/Sell one option each at two extreme X & sell/buy two of the same option at intermediate X having same expiry. CONDOR SPREAD: Buy/Sell one option each at two extreme prices & sell/buy the same option at two intermediate X. PROTECTIVE PUT: Buy stock along with buying put to insure for down side risk in buying stock. COVERED CALL WRITING: Buy stock & sell call.

SUMMERY
Strategies for Volatile Market:
Long Straddle, Long Strangle, Short Time Spread, Short Butterfly & Short Condor.

OTHER STRATEGIES
Box Spread is used for risk averse investors. Strap is used for volatile market with more chances of market advancing. Strip is used for volatile market having more downside bias. Protective put is used to insure against down side risk inherent in the stock/index. Covered call writing is used to reduce the cost of our purchase.

Strategies for Stable Market:

Short Straddle, Short Strangle, Long Time Spread, Long Butterfly & Long Condor.