Lecture 10 Option Strategies FINAL

Covered call

Long stock + short call

Covered call view

Attractive in flat market

Covered call max profit

Strike − stock price + call premium.

Covered call max loss

Loss of stock value minus premium

Covered call break-even

Stock price − call premium received.

Protective put

Long stock + long put; insurance against downside.

Protective put view

Bullish but want protection from losses.

Protective put max loss

Stock price − strike + put premium (downside floor).

Protective put max profit

Unlimited upside from stock.

Protective put break-even

Stock price + put premium paid.

Bull call spread

Long call (low strike) + short call (high strike).

Bull call view

Bullish with limited gain and limited loss

Bull call cost

Debit spread

Bull call max profit

High strike − low strike − net premium.

Bull call max loss

Net premium paid.

Bull put spread

Short put (high strike) + long put (low strike).

Bull put view

Bullish

Bull put cost

Credit spread (receive net premium).

Bull put max profit

Net premium received.

Bull put max loss

High strike − low strike − net premium received.

Bear put spread

Long put (high strike) + short put (low strike).

Bear put view

Bearish; expect price to fall.

Bear put cost

Debit spread.

Bear put max profit

High strike − low strike − net premium paid.

Bear put max loss

Net premium paid.

Bear call spread

Short call (low strike) + long call (high strike).

Bear call view

Bearish; want stock to stay below low strike

Bear call cost

Credit Spread

Bear call max profit

Net premium received.

Bear call max loss

High strike − low strike − net premium received.

Butterfly spread

Long call (low X) + short 2 calls (mid X) + long call (high X).

Butterfly view

Very low volatility; stock ends near middle strike.

Butterfly cost

Debit spread

Butterfly max profit

When Sₜ = middle strike.

Butterfly max loss

Net premium paid.

Calendar spread

Short near-term option + long long-term option, same strike.

Calendar view

Bet on low volatility

Calendar cost

Debit Spread

Calendar max profit

Short-term expiration near the strike.

Collar

Long stock + long put + short call.

Collar view

Downside protection with capped upside.

Collar payoff

Floor at put strike; ceiling at call strike.

Zero-cost collar

Put premium ≈ call premium (net ≈ 0).

Straddle

Long call + long put (same strike).

Straddle view

High volatility; large move in either direction.

Straddle breakevens

Strike ± (call + put premiums).

Straddle max loss

Total premiums paid.

Straddle max profit

Unlimited both directions.

Short straddle

Short call + short put (same strike).

Short straddle view

Low volatility; expect little movement.

Short straddle max profit

Total premiums received.

Short straddle max loss

Unlimited (very risky).

Strangle

Long OTM call + OTM put (different strikes).

Strangle view

High volatility but cheaper than a straddle.

Strangle breakevens

Upper: call strike + premiums; lower: put strike − premiums.

Strangle max loss

Total premiums paid.

Strangle max profit

Unlimited both directions.