Indiana TechRaghda Al Azawi1000000
Indiana TechRaghda Al Azawi
Table of Contents
what puts and calls are:
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.
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)
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
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.
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.
Corporate Finance: A Focused Approach6th Edition Michael C. Ehrhardt, Eugene F. Brigham