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GOLDMINE UPDATE
Options Trading Strategies
- Oct 24 ,2019
- by admin
- Money Wisdom
Options Trading Strategies
- Single Option & Future
- Covered Call
- Protective Put
- Spreads
- Bull Spread
- Bear Spread
- Combinations
- Straddle
- Strangle
Covered Call :
Sell a Call option and Buy Future


Covered Call :


Covered Call :
Buy a Future, Sell a Call Option
Advantage :
- When there is a sharp rise in the future price, purchased future protects the seller of the call from pay-off
When is this appropriate?
- A sharp rise in future prices is expected
Bull Spreads with Call (Buy Call option and Sell Call on a higher strike price)


Bull Spread


Bull Spread
Advantage:
- Limits the investor’s upside & downside risk
When is this appropriate?
- The investor expects Future prices to go up.
Straddle (Buy Call and Put at the same Strike Price and Expiration)


Straddle :


Straddle (Buy Call & Put, Same Strike Price, Expiration Date)
Advantage
- If there is a sufficiently large move in either direction, a significant PROFIT will result
Disadvantage
- If Future price is close to strike price at expiration of options –> LOSS
When is this appropriate to use?
- Investor is expecting a large move in a Future price but does not know in which direction the move will be; a big jump in the price of Future is expected.
Strangle (Buy 1 Call and 1 Put at the same Expiration date but with different Strike Price)


Strangle :


Strangle(Buy Put & Call, Same Expiration Dates, Different Strike Prices; K2 > K1)
When is this appropriate?
- The investor is betting that there will be a large price move but is uncertain whether it will be an increase or decrease.
- The Future price has to move farther in a strangle than in a straddle for the investor to make a profit
Disadvantage
- The downside risk if the Future price ends up at a central value is less with a strangle
Advantage
- The farther strike prices are apart, the less the downside risk and the farther the Future price has to move for a profit to be realized