chap 10
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Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.1
Trading Strategies Involving Options
Chapter 10
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.2
Types of Strategies
Take a position in the option and the underlying
Take a position in 2 or more options of the same type (A spread)
Combination: Take a position in a mixture of calls & puts (A combination)
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.3
Positions in an Option & the Underlying (Figure 10.1, page 224)
Profit
STK
Profit
ST
K
Profit
ST
K
Profit
STK
(a) (b)
(c)
(d)
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.4
Bull Spread Using Calls(Figure 10.2, page 225)
K1 K2
Profit
ST
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.5
Bull Spread Using PutsFigure 10.3, page 226
K1 K2
Profit
ST
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.6
Bear Spread Using PutsFigure 10.4, page 227
K1 K2
Profit
ST
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.7
Bear Spread Using CallsFigure 10.5, page 229
K1 K2
Profit
ST
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.8
Box Spread
A combination of a bull call spread and a bear put spread
If all options are European a box spread is worth the present value of the difference between the strike prices
If they are American this is not necessarily so. (See Business Snapshot 10.1)
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.9
Butterfly Spread Using CallsFigure 10.6, page 231
K1 K3
Profit
STK2
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.10
Butterfly Spread Using PutsFigure 10.7, page 232
K1 K3
Profit
STK2
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.11
Calendar Spread Using CallsFigure 10.8, page 232
Profit
STK
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.12
Calendar Spread Using PutsFigure 10.9, page 233
Profit
STK
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.13
A Straddle CombinationFigure 10.10, page 234
Profit
STK
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.14
Strip & StrapFigure 10.11, page 235
Profit
K ST
Profit
K ST
Strip Strap
Options, Futures, and Other Derivatives 6th Edition, Copyright © John C. Hull 2005 10.15
A Strangle CombinationFigure 10.12, page 236
K1 K2
Profit
ST