Option Strategies Flashcards
What are the two insurance strategies made of the stock and an option?
- Floor
2. Cap
What is a floor?
long the asset + long a put
Guarantees a minimum selling price for the asset
What is a cap?
Short the asset + long a call
Guarantees a maximum buying price of the asset
What is a covered written call?
Short (written) call + long asset
What is a covered written put?
Short (written) put + short asset
What is the result of buying a call and selling a put at the same strike price “K” equal to the forward price ?
Synthetic Forward
What is the resulting strategy if the strike of the put and the call isn’t equal to the forward price?
Off the market forward
What must the investor pay when buying an ‘off the market forward’ ?
Present value of the difference between the forward price and the strike price.
What is a spread?
Buying and selling an option of the same kind
What are the 4 types of spreads?
Bull, Bear, Ratio, Box
When does the bull spread pays off?
When the stock price moves up, but subject to a limit.
When does the bear spread pays off?
When the stock price moves down, but subject a limit.
What is a ratio spread?
Buying n option and selling m option of the same kind .
What is a box spread?
Buying a bull/bear of one type of option and selling the other strategy made with the other type of option.
What is a collar?
Buying put (K1) and selling a call (K2) with K1 < K2
