8.1 Trading Strategies Involving options Chapter 8 Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 8.1 Trading Strategies Involving Options Chapter 8
8.2 Three Alternative Strategies Take a position in the option and the underlying 2 or more options of the same type This is known as a spread a mixture of calls and puts This is known as a combination Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 8.2 Three Alternative Strategies • Take a position in: – the option and the underlying – 2 or more options of the same type • This is known as a spread – a mixture of calls and puts • This is known as a combination
8.3 Payoffs from Options Figure 8.1(p. 186)(Remember c-p=So-Xe-rm) Profit Profit X ¨ Short call long stock Long call short Stock Profit Profit Long put long stock Short put short stock Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 8.3 Payoffs from Options • Figure 8.1 (p. 186) (Remember c – p = S0 – Xe-rT) Profit X ST Short Call Long Stock X ST Long Call Short Stock Profit X ST Long Put Long Stock Profit Profit X ST Short Put Short Stock •
8.4 Bull Spread Using Calls (Figure 8.2, page 187) requires an initial investment Profit Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 8.4 Bull Spread Using Calls (Figure 8.2, page 187) X1 X2 Profit ST -- requires an initial investment
8.5 Bull Spread Using puts Figure 8.3, page 189 involves a positive cash flow Profit X Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University 8.5 Bull Spread Using Puts Figure 8.3, page 189 X1 X2 Profit ST -- involves a positive cash flow