In the tutorial on risk management applications of options, we will look at how various options strategies can be used for managing risk in a company. Before we start let’s review the key notations used in options formulas: Time 0 refers to the time when an options strategy is initiated Time T refers to the […]
Options Strategies
Types of Option Strategies
An option strategy refers to purchasing and/or selling a combination of options and the underlying assets in order to achieve a desired payoff. Option strategies can be created to favor different market conditions such as, bullish, bearish or neutral. The options positions consist of long/short put/call option contracts. Depending on the need and market forecast, […]
Option Strategies: Covered Call
This strategy involved being long the underlying stock and short a call option on the same stock. The long position in the underlying stock provides a cover, in case the buyer of the call option exercises his right and the stocks have to be delivered. If the trader buys the underlying instrument at the same […]
Option Strategies: Covered Put
This strategy involves selling a put option and being short an equivalent amount of the underlying stock. Covered Put Construction: Short 100 stocks + Short put option When the stock drops, the put option will be exercised and the investor will get the stock at the short put strike price. This will cover the obligation […]