RSM332 Option Trading Strategies

Bull Spread (Call)

• Long 1 call @ X_low; Short 1 call @ X_high

• Payoff increases between X_low and X_high

Bull Spread (Put)

• Short 1 Put @ X_high; Long 1 Put @ X_low

• Payoff increases between X_low and X_high

Bear Spread (Call)

• Short 1 Call @ X_low; Long 1 Call @ X_high

• Payoff decreases between X_low and X_high

Bear Spread (Put)

• Long 1 Put @ X_high; Short 1 Put @ X_low

• Payoff decreases between X_low and X_high

Long Butterfly Spread

• Long 1 @ X_low; Short 2 @ X_mid; Long 1 @ X_high (all Call or all Put)

• Payoff highest near X_mid, losses limited outside X_low / X_high

Short Butterfly Spread

• Short 1 @ X_low; Long 2 @ X_mid; Short 1 @ X_high (all Call or all Put)

• Payoff lowest near X_mid, profits if price moves far away

Long Straddle

• Long 1 Call @ X; Long 1 Put @ X

• Payoff increases if price moves far from X; max loss = premium

Short Straddle

• Short 1 Call @ X; Short 1 Put @ X

• Payoff highest if price = X; unlimited loss if price moves far

Long Strangle

• Long 1 Put @ X_low; Long 1 Call @ X_high

• Payoff increases if price moves far outside [X_low, X_high]

Short Strangle

• Short 1 Put @ X_low; Short 1 Call @ X_high

• Payoff highest if price stays between [X_low, X_high]; unlimited loss outside

Protective Collar

• Long Stock; Long Put @ X_low; Short Call @ X_high

• Protects downside, caps upside

Reverse Collar

• Short Stock; Long Call @ X_high; Short Put @ X_low

• Protects upside, caps downside