presentation on option strategies

8/8/2019 Presentation on Option Strategies

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:OPTION STRATEGIES:

AN INSIGHT INTO THE VARIOUS STRATEGIES FOR THEINVESTORS BENEFIT

By:

Akanksha Mishra

Chhavi KhemaniNeha Singh

Amit Kumar

Sunny Anand



What is an Option?

An option is a contract written by a seller that conveys to the buyer the right

but not the obligation

to buy (in the case of a call option) or

to sell (in the case of a put option) a

particular asset, at a particular price (Strike price / Exercise price) in future.

In return for granting the option, the seller collects a payment (the premium)from the buyer.

Exchange- traded options form an important class of options which have

standardized contract features and trade on public exchanges, facilitating

trading among large n umber of investors.

They provide settlement guarantee by the Clearing Corporation thereby

reducing counterparty risk.

Options can be used for hedging, taking a view on the future direction of the

market, for arbitrage or for implementing strategies which can help in

generating income for investors under various market conditions.



OPTIONS TERMINOLOGY

Index Options

Stock Options

Buyer of an Option Writer / Seller of an

Option

Call Option

Put Option Premium

Expiration Date

Strike Price American Option

European Option.



Key Points of Consideration

1.Intrinsic Value: If in ITM, Intrinsic value is

ITM, if OTM, it is zero. For a call it is

max{0,(S-K)}. For a put it is max{0,(K-S)}.

K=Strike, S=Spot.2.Time Value: Premium-Intrinsic Value.

Option kinds In-The-MoneyPositive Cash Flows

At-The-Money Out-the-MoneyNegative Cash

FlowsPUT Option Spot Pr. > Strike Pr. Spot = Strike Spot < Strike

CALL Option Spot < Strike Spot = Strike Spot > Strike



Various Option Strategies

Long Call

Short Call

Long Put

Short Put

Covered Call

Covered Put

Long Straddle Short Straddle

Long Strangle

Short Strangle

Protective Call Protective Put.

Long Call Butterfly

Short Call Butterfly

Collar Bear/Bull , Call/Put

Spread.



LONG CALL

WHEN MARKET IS BULLISH.MORE

EXPECTATION OF BULLISHVOLATALITY.

PROFIT UNLIMITED IN RISINGMARKET

LOSS LIMITED TO INITIAL PREMIUM PAID

PROFIT AT EXPIRATION:-

STOCK PRICE- STRIKE PRICE-

PREMIUM PAID



BUY PUT

WHEN MARKET IS BEARISH,VOLATILITY IS BULLISH:-

PROFIT IS UNLIMITED INBEARISH MARKET

LOSSLIMITED TO NETPREMIUM PAID

PROFIT AT EXPIRATION:-

STRIKE PRICE- STOCK PRICE-PREMIUM PAID



LONG STRADDLE

WHEN MARKET IS

BULLISH.MOVEMENT O FMARKET IS UNKNOWN:-

PROFIT UNLIMITED FOR AN INCREASEOR DECREASE IN UNDERLYING ASSETS

LOSS LIMITED TO THE NET PREMIUMPAID

UPSIDE PROFIT AT EXPIRATION:-

STOCK PRICE- PREMIUM PAID-STRIKE

PRICE DOWNSIDE PROFIT AT EXPIRATION:-

STRIKE PRICE- STOCK PRICE- PREMIUM

PAID



LONG STRANGLE

Buy a put (A), buy a call at higherstrike (B)

PROFIT POTENTIAL IS UNLIMITED

DEPENDING UPON THE MARKETMOVEMENT.

LOSS OCCURS ONLY IF THE MARKET IS

STATIC LIMITED TO THE PREMIUM PAID.

UPSIDE PROFIT AT EXPIRATION:-

STOCK PRICE- PREMIUM PAID-CALL STRIKEPRICE

DOWNSIDE PROFIT AT EXPIRATION:-PUT PRICE- STOCK PRICE- PREMIUM PAID



PROTECTIVE PUT

An investor who purchases a put option(A) while holding shares of theunderlying stock or Future from aprevious purchase is employing a"protective put.

PROFIT:- STOCK PRICE+ PREMIUMPAID

LOSS:-STRIKE PRICE- STOCKPURCHASE PRICE- PREMIUM PAID



COVERED CALL

An investor Sells a call option (A) while atthe same time owning an equivalentnumber of shares of the underlyingstock or Futures.

MAXIMUM PROFIT IF THE STOCKPRICE IS ABOVE CALLOPTIONSSTRIKE PRICE

LOSS CAN BE SUBSTANTIAL IF THEPRICE KEEPS ON DECLINING.

presentation on option strategies

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