Protective call
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This strategy involves being short on a stock future to take advantage of downward price movements, while purchasing a call option to limit losses from an unexpected price rise. The investor shorts a stock future and buys an at-the-money or slightly out-of-the-money call option. If the stock price falls, the investor profits from the short future position. However, if the price rises unexpectedly, the call option limits losses. The maximum risk is limited to the call strike price minus the stock price plus the premium paid. The maximum reward occurs if the stock price falls to the call strike price minus the premium.
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- A brief history of options and their use in ancient Greece.
- Current options markets and regulators.
- Key terminology related to options contracts.
- The main types of options - calls and puts.
- Common valuation methods and strategies for options positions, including bullish, bearish, and neutral strategies.DRM Ch 1-Introduction.pptx
DRM Ch 1-Introduction.pptxBharatiya Vidya Bhavan's Usha and Lakshmi Mittal Institute of Management
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A derivative is a financial instrument whose value is based on an underlying asset such as a stock, currency, or commodity. Derivatives include forwards, futures, swaps, and options. Forwards and swaps are traded over-the-counter (OTC) while futures and options are traded on exchanges. Options provide the right but not the obligation to buy or sell the underlying asset, while futures/forwards obligate the parties to fulfill the contract. Derivatives allow risk transfer and provide leverage to market participants.Options Trading
Options TradingAlfred Rodrigues
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This document discusses various options trading strategies including:
1. Covered calls which involve buying a stock and selling a call option to generate income from the call premium. This is appropriate when a sharp rise in stock prices is expected.
2. Protective puts which involve buying a stock and purchasing a put option to establish a floor and limit potential losses. This provides downside protection similar to insurance.
3. Bull and bear spreads which involve buying and selling options of the same type but with different strike prices to limit risk and profit from the expected direction of the stock price.
4. Butterfly spreads and straddles which establish positions that can profit from volatility in the stock price regardless of direction throughDerivatives & Risk Management
Derivatives & Risk Management Ashish Sadavarti
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Mr. Sadavarti presented on the short call option strategy. A call option gives the holder the right to buy the underlying asset at a set price. For a short call option strategy, the seller of the call option expects the underlying price to fall. As an example, Mr. Nelson sold a call option on Nifty with a strike price of Rs. 2600 and received a premium of Rs. 154. If the Nifty closes at or below Rs. 2600 at expiration, Mr. Nelson keeps the full premium. His maximum profit is Rs. 154 with unlimited risk if the Nifty rises above the strike price plus the premium received.Option strategies part iii
Option strategies part iiiAmeya Ranadive
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The document discusses bull put spread and bear call spread strategies. A bull put spread involves selling a put option and buying a further out-of-the-money put. This strategy profits if the underlying asset stays above the higher strike price or rises. A bear call spread involves selling an in-the-money call and buying a further out-of-the-money call. This strategy profits if the underlying stays below the higher strike price or falls. The document also provides an example of each strategy, including the net premium, break-even price, and potential payoffs.Lecture no 53 collar
Lecture no 53 collarProfessional Training Academy
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The document discusses the collar trading strategy, which combines buying a stock, purchasing put options for protection against declines, and selling call options to finance the insurance. This low-risk strategy is suitable for conservatively bullish outlooks, aiming for long-term positions with limited maximum risk and reward. Successful execution involves careful selection of strike prices and managing the position according to pre-defined trading rules.dokumen.tips_1-finc4101-investment-analysis-instructor-dr-leng-ling-topic-int...
dokumen.tips_1-finc4101-investment-analysis-instructor-dr-leng-ling-topic-int...MbongeniShongwe1
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1. The document provides an introduction to options, covering key concepts like call and put options, exercise price, premium, and payoffs for option holders and writers.
2. Key option features discussed include the right to buy/sell the underlying asset, expiration date, American vs. European style, and calculating profit/loss at expiration.
3. Examples are provided to illustrate payoffs and profits for long and short positions in call and put options when the underlying stock price is above, below, or at the exercise price.Ad
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Protective call
- 1. STRATEGY:PROTECTIVE CALL / SYNTHETIC LONG PUT R.NAGA SRINIVASARAO NAGA 1
- 2. STRATEGY: PROTECTIVE CALL / SYNTHETIC LONG PUT This is a strategy wherein an investor has gone short on a stock future and buys a call to hedge. An investor shorts a stock future and buys an ATM or slightly OTM Call. In case the stock future price falls the investor gains in the downward fall in the price. However, incase there is an unexpected rise in the price of the stock the loss is limited. The pay-off from the Long Call will increase thereby compensating for the loss in value of the short stock future position. When to Use: If the investor is of the view that the markets will go down (bearish) but wants to protect against any unexpected rise in the price of the stock. Risk: Limited. Maximum Risk is Call Strike Price – Stock Price + Premium Reward: Maximum is Stock Price – Call Premium Breakeven: Stock Price – Call Premium Example : Suppose Apple stock. is trading at 184$ in June. An investor Mr. A buys a $185 call for 2$ while shorting the stock at $184. Strategy : Short Stock Future+ Buy Call Option Sells Stock future Current Market Price ($) 184 Buys Call Strike Price ($) 185 Mr. A pays Premium ($) 2 Break Even Point ($) (Stock Price – Call Premium) 182 NAGA 2
- 3. Apple. closes at ($)(Expiry) Payoff from the stock ($.) Net Payoff from the Call Option ($) Net Payoff ($) 165 19 -2 17 175 9 -2 7 180 4 -2 2 181 3 -2 1 182 2 -2 0 183 1 -2 -1 184 0 -2 -2 185 -1 -2 -3 186 -2 -1 -3 187 -3 0 -3 188 -4 1 -3 189 -5 2 -3 190 -11 8 -3 The payoff schedule The payoff chart (Synthetic Long Put) If you need more clarification kindly contact me. Mail id: naga@marketinvestment.com, rao9948281822@gmail.com. NAGA 3