Trading Strategies Involving Options
6 important questions on Trading Strategies Involving Options
How about trading an option and the underlying asset?
Short stock and long call (reverse writing of a covered call) = Long put - Cash
Long stock and long put (protective put) = Long call + Cash
Short stock and short put (reverse protective put) = Short call - Cash
How about bear spreads?
Payoffs:
- St<K1 - - > K2-K1
- K1 < St < K2 - - > K2-St
- St > K2 - - > 0
What about box spreads?
Payoffs: always K2-K1
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What about diagonal spreads?
What about a straddle
Payoff:
St<K - - > K - St
St=K - - > 0
St>K - - > St - K
What about strips and straps?
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