World Economy

Jun 4, 2006

Option Strategies
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Various types of Option strategies that can be used in order to make profits are as follows:
1). Bull spread: :
when the market is expected to go up (bullish outlook) a bull spread can be created to make profits in rising market with minimum amount of risk. Bull spread is created by buying a call/put of lower strike price and selling another call/put of higher strike price.
2). Bear spread:
When the market is expected to go down (bearish outlook) a bear spread can be created to ensure profits in a falling market with minimum amount of risk. Bear spread is created by buying a call/put of higher strike price and selling another call/put of lower strike price.
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3). Bottom straddle or Straddle purchase:
when the market is expected to be volatile and the direction of it is not clear bottom straddle strategy can be created. Bottom straddle can be created by buying a Call and a Put together of the same strike price and same expiry date.
4). Top straddle or Straddle sell:
when the market is expected to move in a sideways zone a top straddle can be created. Top straddle can be created by selling a Call and a Put together of the same strike price and same expiry date.
5). Butterfly Spread:
when the market is expected to move in a sideways zone a Butterfly spread can be created. Butterfly spread can be created by buying two call options, one with low strike price and the other with comparatively high strike price, and selling two call options having the strike price which lies in the middle of above two strike prices and which is close to the current prevailing market price.
6). Strangles:
when the market is expected to be volatile and the direction of it is not clear bottom straddle strategy can be created by buying a call of higher level and buying a Put of lower level. Both of these price levels of buying Call & buying Put forms the basis of ranges of Index beyond which it is expected to remain. If the prices remain outside the price range he makes profit otherwise loss.
7). Strips:
when the market is expected to be volatile and the direction of it is not clear bottom strips strategy can be created by buying a call and two puts of same strike price. Investor makes profit if the exercise price close far from the strike price of Call and Put taken.
8). Straps:
when the market is expected to be volatile and the direction of it is not clear bottom straps strategy can be created by selling two calls and a put of same strike price. Investor makes profit if the exercise price close far from the strike price of Call and Put taken.

by erectusplus at 6:08 AM |