Derivatives Trading Strategies Professor André Farber Solvay Business School Université Libre de Bruxelles
Derivatives Trading Strategies Professor André Farber Solvay Business School Université Libre de Bruxelles.
Dec 21, 2015
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DerivativesTrading Strategies
Professor André Farber
Solvay Business School
Université Libre de Bruxelles
Derivatives 09 Strategies |2September 14, 2005
Trading strategies
1. A single option and a stock: covered call, protective put
• Covered call: S-C
• Protective put: S+P
2. Spreads: bull, bear, butterfly, calendar
• Bull: +C(X1) – C(X2) X1<X2
• Bear: +C(X1) – C(X2) X1>X2
• Butterfly: +C(X1) + C(X3) – 2C(X2) X1<X2<X3
• Calendar: +C(T1)-C(T2) T1>T2
3. Combinations: straddle, strips and straps, strangle
• Straddle: +C+P
• Strip: +C + 2P
• Strap: +2C+P
• Strangle: +C(X2)+P(X1) X1<X2
Derivatives 09 Strategies |3September 14, 2005
Analyzing a strategy
• Initial cost
• Maximum profit: limited, unlimited
• Maximum loss: limited, unlimited
• Breakeven price: when do you recover initial price
• Standstill return: quid if stock price does not change?
• Market outlook: bearish, neutral, bullish
• Risk posture
Derivatives 09 Strategies |4September 14, 2005
Covered Call
MaturityCovered
call Price DeltaStock 1 1,000.00 1.00Call 950 0.25 0 91.02 0.68Call 1000 0.25 -1 63.37 0.55Call 1050 0.25 0 42.26 0.42Put 950 0.25 0 33.92 -0.32Put 1000 0.25 0 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Covered call 936.63 0.45
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Profit
Stock Price
Immediate
At maturity
Derivatives 09 Strategies |5September 14, 2005
Protective PutMaturity Prot.put Price Delta
Stock 1 1,000.00 1.00Call 950 0.25 0 91.02 0.68Call 1000 0.25 0 63.37 0.55Call 1050 0.25 0 42.26 0.42Put 950 0.25 0 33.92 -0.32Put 1000 0.25 1 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Prot.put 1055.90 0.55
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Derivatives 09 Strategies |6September 14, 2005
Bull Call Spread
MaturityBull spread
Price DeltaStock 0 1,000.00 1.00Call 950 0.25 1 91.02 0.68Call 1000 0.25 0 63.37 0.55Call 1050 0.25 -1 42.26 0.42Put 950 0.25 0 33.92 -0.32Put 1000 0.25 0 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Bull spread 48.76 0.26
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Derivatives 09 Strategies |7September 14, 2005
Bear Call Spread
MaturityBear
spread Price DeltaStock 0 1,000.00 1.00Call 950 0.25 -1 91.02 0.68Call 1000 0.25 0 63.37 0.55Call 1050 0.25 1 42.26 0.42Put 950 0.25 0 33.92 -0.32Put 1000 0.25 0 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Bear spread -48.76 (0.26)
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Derivatives 09 Strategies |8September 14, 2005
Butterfly
Maturity Butterfly spreadPrice DeltaStock 0 1,000.00 1.00Call 950 0.25 1 91.02 0.68Call 1000 0.25 -2 63.37 0.55Call 1050 0.25 1 42.26 0.42Put 950 0.25 0 33.92 -0.32Put 1000 0.25 0 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Butterfly spread 6.54 0.00
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Derivatives 09 Strategies |9September 14, 2005
Straddle
Maturity Straddle Price DeltaStock 0 1,000.00 1.00Call 950 0.25 0 91.02 0.68Call 1000 0.25 1 63.37 0.55Call 1050 0.25 0 42.26 0.42Put 950 0.25 0 33.92 -0.32Put 1000 0.25 1 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Straddle 119.27 0.10
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Derivatives 09 Strategies |10September 14, 2005
Strip
Maturity Strip Price DeltaStock 0 1,000.00 1.00Call 950 0.25 0 91.02 0.68Call 1000 0.25 1 63.37 0.55Call 1050 0.25 0 42.26 0.42Put 950 0.25 0 33.92 -0.32Put 1000 0.25 2 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Strip 175.17 (0.35)
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Derivatives 09 Strategies |11September 14, 2005
StrapMaturity Strap Price Delta
Stock 0 1,000.00 1.00Call 950 0.25 0 91.02 0.68Call 1000 0.25 2 63.37 0.55Call 1050 0.25 0 42.26 0.42Put 950 0.25 0 33.92 -0.32Put 1000 0.25 1 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Strap 182.64 0.65
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Derivatives 09 Strategies |12September 14, 2005
Strangle
Maturity Strangle Price DeltaStock 0 1,000.00 1.00Call 950 0.25 0 91.02 0.68Call 1000 0.25 0 63.37 0.55Call 1050 0.25 1 42.26 0.42Put 950 0.25 1 33.92 -0.32Put 1000 0.25 0 55.90 -0.45Put 1050 0.25 0 84.42 -0.58Strangle 76.19 0.10
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