Options strategies

Option strategies are investment strategies involving derivative financial instruments. Based on a positive, neutral or negative market expectations and the volatility of the underlying asset (underlying) the options the investor can enter into option positions that serve to hedge the underlying asset held by the investor. Option strategies can be discussed but also independent of the holding of the underlying.

  • 3.1 Price Spreads 3.1.1 Price - spread positions in the same class 3.1.1.1 Bull Spread
  • 3.1.1.2 Bear Spread
  • 3.1.2.1 straddle
  • 3.1.2.2 Strangle
  • 3.1.3.1 butterfly spread
  • 3.1.3.2 Condor Spread
  • 3.1.3.3 Ratio Spread
  • 3.1.3.4 Back Spread
  • 3.1.4.1 box spread
  • 3.2.1 Bull Time Spread
  • 3.2.2 Bear Time Spread
  • 3.2.3 Combined Time - spread positions 3.2.3.1 Ratio Time Spread
  • 3.3.1 Diagonal Spread
  • 4.1 Synthetic Long
  • 4.2 Synthetic Short

Basic positions

Basic positions are unsecured option strategies, either from a call ( call option) or a put ( put option ), which may be gone ( so long) and sold (ie short) each bought. A short position is about a short position in a call option, which is not combined with a long position in the underlying asset. Options are hedging contracts in which the buyer of an option can not lose more than the option premium paid, but the writer of the option receives a theoretically unlimited loss potential.

Fuse positions

A backup position (also: hedge position) is a portfolio of options and the associated underlying ( Covered option strategy). Either the losses from the stock through the exercise gain in the options or the exercise of losses in the options by gains in shares are wholly or partly covered, without increasing the risks:

Covered Call

In a covered call acquires or holds a one Underlying and sells a call option on the underlying. Therefore, you had income from the sale option, which one can derive that the whole construct does not undergo any increase in value when the value of the underlying is at the exercise date over the exercise price. A covered call is also associated with risks, especially at high volatility of the underlying. A covered call is then assessed as safe position if the investor assumes a constant to slightly increasing price of the underlying. If the underlying asset is acquired at the same time the sale of the call option, referred to this strategy as a buy -write strategy. If you hold the Underlying already from a previous purchase and now sells a call option, this strategy is also called Overwrite. Normally, both the Underlying is in the same brokerage account maintained as the written call. This strategy is the simplest and most widely covered option strategy.

Protective Put

For a protective put the buyer acquires the underlying and a put option to do so. The purpose is to insure themselves with the put option against any fall in price risk. That's why he is considered an important means to implement portfolio insurance. The difference between the Protective Put and Covered Call is that the investor is in a Protective Put secures a minimum selling price, and it pays a premium and a maximum sale price guaranteed when covered call and receives a discount. An investor puts a protective put strategy most often in when he has unrealized gains from an increase in value of the underlying and concerns about the future price development and wants to hedge against a negative price performance of the underlying. The protective put strategy is a bullish directional option strategy.

Regardless of how much loses the Underlying during the term of the put in value of the put warrants to the investor the right to sell his shares at the strike price of the put until the option expires. The put option that is guaranteed to the investor not only the selling price at the strike price of the option, but gives him the same control over to choose the time of the sale of the underlying security during the term of the option itself.

Reverse hedge

In a reverse hedge the underlying asset (underlying ) is not acquired, but on the contrary sold short ( short), hence the name "reverse" ( inverted ) hedge, and calls to either long or short put options are used. The reverse - hedge strategy is sometimes referred to as Simulated Straddle. Ideally, the underlying sold short Underlying this strategy is very volatile. Very volatile underlyings such as volatile stocks, have the advantage that the short seller must in addition pay not the dividend to the buyer. Company with a very volatile stock price to pay significantly less dividend to its shareholders. With a Net Reverse Hedge (also 1:1 Reverse Hedge, that is the amount of short selling relates to the amount of products purchased or put options ) with a long call one speculates on falling share prices. With a Net Reverse hedge with short puts one speculates on steady to slightly declining stock prices.

Collar

A collar is a combination of the purchase of a put and selling a call option to hedge an existing stock position. About buying a put option ( with a lower price limit), the shares against larger downward movements are hedged. The cost of buying the put option can be mitigated by the simultaneous sale of a call option ( with a higher strike price ). If the expenses arising from the purchase of the put option and the proceeds from the sale of the call option compensate exactly, it is called a " zero-cost collar".

Spread positions

When spread positions is a portfolio of purchased (long) and / or sold ( short) options. Generally, a distinction is made between price spreads spreads and time.

Price spreads

The price spread option positions are distinguished on the basis of combinations of options (purchase and sale ) from the same or from different option classes.

Price spread positions in the same class

Both the bull spread and the bear spread can be created with call options as well as put options. Then of Bull Call Spread (education with calls) and Bull Put Spread (education with puts), as well as Bear Call Spread (education with calls) and Bear Put Spreads Accordingly we speak (education with puts).

Bull Spread

A bull spread (also: bull spread) consists of buying a call option and the simultaneous sale of a call option. The exercise data of the two options are the same, but the long position has a lower exercise price than the short position. Based on the put-call parity, a bull spread formed with both calls as well as puts. Example Position:

Bear spread

A bear spread (also: bearish spread) consists of buying a call option ( long call ) and the simultaneous sale of a call option (short call). The exercise data of the two options are the same, however, the short position has a lower exercise price than the long position. Based on the put-call parity, a bear spread formed with both calls as well as puts. Example Position:

Price spread positions of different classes

The price - spread positions are options positions from different class options ( call and put ).

Straddle

When straddle is speculated to be strongly changing courses ( long straddle ) or courses that remain the same (short straddle ). The short straddle involves unlimited risk of loss.

  • Long Straddle: (also: bottom straddle or straddle bought called ): For a long straddle same time, a call and a put with the same underlying asset, bought at the same strike price and the same expiration date. The market expectation of the investor is therefore volatile, that is expected to substantial price changes in the underlying investors. The profit potential is theoretically unlimited. The potential loss is limited to the paid option prices. Example Position:
  • Short Straddle: (also called top straddle or straddle written ) This is the reverse position of the Long Straddle, so the sale of a call and a put on the same underlying asset, at the same strike price and the same expiration date. The investor expects a stagnant level of the underlying asset, ie the investor expects no major price changes in the underlying. The profit potential is composed of the double option premium collected. The potential loss is theoretically unlimited in strongly rising prices of the underlying, limited in heavily falling prices of the exercise price. Example Position:
  • Covered straddle written: short combination of underlying and long a put.
  • Naked written straddle: Opening of the position without cover (without underlying)
Strangle

The option position strangle is a similar option position as the straddle. It is also formed with a call and a put but with different strike prices and / or different expiration date.

  • Long Strangle: simultaneously a call and a put with different strike prices and / or different expiration date For a long strangle is purchased. The market expectation of the investor is therefore volatile, that is, the investor expects sharp price changes in the underlying, stronger than a Long Straddle. The profit potential is theoretically unlimited. The potential loss is limited to the paid option prices. Example Position:
  • Short Strangle: This is the reverse position of the long strangle, so the sale of a call and a put with different strike prices and / or different expiration date. The investor assumes an almost stagnant, slightly fluctuating levels of the underlying. The profit potential is composed of the double option premium collected. The potential loss is unlimited in theory at strong rising or falling prices of the underlying. Example Position:

Combined price spread positions in the same class

In the same class price - spread positions is a portfolio of purchased (long) and sold ( short) options. It is therefore only calls or only puts. The options can consist of different series, ie they differ by strike price or maturity. Depending on the ratio of employed options is called x: y spreads. A credit position is available when building in the position of an inflow occurs, a debit position when funds flow.

Butterfly spread

The butterfly spread is an options position that combines a bull price spread and a bear spread price. Basically, the butterfly spread is possible with both calls and puts, are in common use but usually predominantly call positions.

  • Long Butterfly Spread: The Long Butterfly Spread two calls are bought and sold two calls. The first purchased call is purchased at a lower price of the underlying ( in -the-money ) and the second purchased call is bought at a higher price of the underlying ( out-of -the-money ). Two additional calls are sold at the current price of the underlying ( at- the-money ). Example Position:
  • Short Butterfly Spread: also two calls are bought and sold two calls In the short butterfly spread. Here, however, the first call is in contrast to the above long position, sold at a lower price of the underlying ( in -the-money ), and a second call ( out-of -the-money ) are also sold at a higher price of the underlying. Furthermore, buy two calls at the current price of the underlying ( at- the-money ). Example Position:
Condor spread

The Condor Spread is an option position in which two price spread positions are combined. The difference from the Butterfly is that the Condor Spread is based on four different strike prices of the options compared to three exercise prices at butterfly spread.

  • Long Condor Spread: The Long Condor Spread two calls are also bought and sold two calls like the butterfly spread. The first purchased call is purchased at a lower price of the underlying ( in -the-money ) and the second purchased call is bought at a higher price of the underlying ( out-of -the-money ). In addition, two more calls to be sold. The first at the current price of the underlying ( at- the-money ) and the second slightly higher than the first. Example Position:
  • Short Condor Spread: also two calls are bought and sold two calls In the Short Condor Spread. Here, however, the first call is in contrast to the above long position, sold at a lower price of the underlying ( in -the-money ), and a second call sold at a higher price of the underlying ( out-of -the-money ). Furthermore, bought two more calls. The first at the current price of the underlying ( at- the-money ) and the second slightly higher than the first. Example Position:
Ratio spread

A Ratio Spread ( also: Ratio Vertical Spread called ) long and short positions with different number of contracts to be established.

  • Call Ratio Spread: When the Ratio Call Spread one or more calls are bought with a low strike price and simultaneously sells a larger number of calls with a higher strike price. The calls all have the same remaining term. This combination of long and short positions can be both a debit and a credit position. Example Position:
  • Ratio Put Spread: With a Ratio Put Spread one or more puts are sold with a low strike price and simultaneously bought a smaller number of puts with a higher strike price. This combination of long and short positions can be both a debit and a credit position. Example Position:
Back spread

When baked spread ( also: Reverse spread called ) long and short positions with different number of contracts to be established.

  • Back Spread Call: (also: Reverse Ratio Call Spread ) reversal of the ratio call spreads. Long positions are greater than the short positions. Example Position:
  • Back Spread Put: (also: Reverse Ratio Put Spread ) reversal of the ratio put spreads. Long positions are greater than the short positions. Example Position:

Combined price spread positions of different classes

When combined price spread positions of different classes is a portfolio of purchased (long) and sold ( short) options. It is by a combination of call and put options, which may consist of multiple series, that is, they differ by strike price or maturity.

Box spread

The box spread is an options position, which is based on arbitrage opportunities due to imbalances in the rating of calls and puts.

  • Long Box: Long box denotes the purchase of the box spreads. This consists of a bull spread with calls ( also: Bull Call Spread ) and a bear spread with puts ( also: Bear Put Spread ). That is, the investor who wants to make a profit arbitrage, acquires a number of calls with low strike price and sells an equal number of calls with a higher strike price. At the same time, he acquires an equal number of puts with a higher strike price and sells the same number of puts at a lower strike price. Example Position:
  • Short Box: Short Box refers to the sale of the box spreads. This consists of a bear spread with calls ( also: Bear Call Spread ) and a bull spread with puts ( also: Bull Put Spread ). That is, the investor who wants to make a profit arbitrage, acquires a number of calls with a higher strike price and sells an equal number of calls with a lower strike price. At the same time, he acquires an equal number of puts with low strike price and sells the same number of puts at a higher strike price. Example Position:

Time spreads

At a time spread (also called time spread or horizontal spread) options are combined with the same strike price so that the option sold with the previous exercise date and the exercise date is bought with later.

Bull Time Spread

A bull spread time (also: Bull Calendar Spread called ) consists of a combination of options with the same strike price but different expiration dates. Based on the put-call parity, a bull may be time to spread formed with both calls as well as puts.

Bear Time Spread

A Bear Time Spread ( also: Bear Calendar Spread called ) consists of a combination of options with the same strike price but different expiration dates. Based on the put-call parity can be a time Bear Spread with both calls as well as puts are formed.

Combined time - spread positions

As with combined price spread positions, the options from different series can exist, ie they differ by strike price or maturity: Depending on the ratio of used options we also speak here of x: y spreads. A credit position is available when building in the position of an inflow occurs, a debit position when funds flow.

Ratio Time Spread

A time ratio spread ( also called Time Spread Ratio Vertical ) is composed of more long options than short options on the same underlying instrument. This position benefits from a strong movement of the underlying asset in both directions.

  • Ratio Call Time: This option is position from the basic structure similar to the Bull - time spreads, but consists of a larger number of sales calls.
  • Ratio Put Time: This option is position from the basic structure similar to the Bear - time spreads, but consists of a larger number of sold puts.

Combination of price - spread and time spread

Diagonal spread

A Diagonal Spread consists of options with different strike prices and different expiration dates. A credit position is available when building in the position of an inflow occurs, a debit position when funds flow.

Synthetic positions

Synthetic Long

The investor expects a strong upward movement of the underlying asset and builds through the purchase of a call option and the simultaneous sale of a put with the same residual maturity, a synthetic long position. That is, in case of confirmation of the rate forecast entering profit corresponds to almost the same profit that would be achieved with the purchase of an equivalent number of underlying asset. Example Position:

Synthetic Short

The investor expects a strong downward movement of the underlying asset and builds through the purchase of a put option and the simultaneous sale of a call option with the same residual maturity a synthetic short sale on. Example Position:

Derivative (finance) Collar (finance) Share (finance)
622872
de