Financial Managemnt

Final Project

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Indiana TechRaghda Al Azawi1000000

Indiana TechRaghda Al Azawi

Table of Contents

Introduction

what puts and calls are:

Put Option

Call Option

different strategies: HYPERLINK “https://www.optionseducation.org/content/oic/en/strategies_advanced_concepts/strategies/synthetic_short_stock.html”

Describe a scenario where a private investor might find option trading to be a beneficial investment strategy.

References.

1.Introduction:

Option is a contract give the owner the right to buy or sell an asset at a specific period of time and each option has it own expiration time

if the option exercised before its expiration date its called American option

and if it can only exercised only on its expiration date its called European option

2,what puts and calls are:

Call options: provide the holder the right but not the obligation to buy a share of stock at a fixed price which is also called a strike price and sometimes its called exercise price because it’s the price which you exercise the option.

Put options: give the owner the right to sell a share of stock at a fixed strike price.

When the current stock price is greater than the strike price then the option is in the money

and when the stock price is less than the strike price then the option is called out of the money and the exercise value is the payoff from immediately exercising an option is

Exercise value=max (current price of the stock-strike price)

3.different strategies:

To understand the diagrams above the line is profit and below the line is losses to the right is higher stock price and to the left is lower stock price

Collar:

The owner write a call option and buys a put option with the same expiration to have a long position in the underlying stock

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/bear_call_spread.html” Bear Call Spread

consisting of :one short call option and one long call option.

Profit :This strategy generally profits if the stock price holds steady or declines.

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/bear_put_spread.html” Bear Put Spread

consisting of :buying one put and selling another put at a lower strike

profits: strategy generally profits if the stock price moves lower.

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/bull_call_spread.html”

Bull Call Spread

consists of :buying one call option and selling another at a higher strike price

profits: strategy generally profits if the stock price moves higher,

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/bull_put_spread.html” Bull Put Spread

consists of :short put option and a long put option with a lower strike.

profits: strategy generally profits if the stock price holds steady or rises.

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/covered_ratio_spread.html” Covered Ratio Spread

it profits if the stock move up to, but not above the strike price of the short calls option and all the option have the same expiration date

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/long_call_condor.html” Long Call Condor

It contain four different call option with the same expiration date .

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/long_condor.html” Long Condor

It Consist of one long call option and short call with higher strike.

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/long_iron_butterfly.html” Long Iron Butterfly

This strategy profits if the stock if it outside the wings of the iron butterfly at expiration.

HYPERLINK “https://www.optionseducation.org/strategies_advanced_concepts/strategies/long_put_butterfly.html” Long Put Butterfly

it profits if the stock is at the body of the butterfly at expiration.

HYPERLINK “https://www.optionseducation.org/content/oic/en/strategies_advanced_concepts/strategies/synthetic_long_stock.html” Synthetic Long Stock

It consist of long call option and the short put together result a long stock position.

HYPERLINK “https://www.optionseducation.org/content/oic/en/strategies_advanced_concepts/strategies/synthetic_short_stock.html” Synthetic Short Stock

It consist of short call option and a long put option with the same expiration.

4.Describe a scenario where a private investor might find option trading to be a beneficial investment strategy:

If the private investor have a doubt about the asset he may use the option strategy to change the investment value if the investment drop then he must buy put option and if it go up he will buy the call option in this case the private investor will find option trading to be a beneficial investment strategy.

References

Corporate Finance: A Focused Approach6th Edition Michael C. Ehrhardt, Eugene F. Brigham

https://www.investopedia.com/exam-guide/cfa-level-1/derivatives/options-calls-puts.asp

https://www.optionseducation.org/strategies_advanced_concepts/strategies.htmlhttps://www.optionseducation.org/strategies_advanced_concepts/strategies/collar.html