Author: zohebc08070c652

Ratio Put Backspread

Written by zohebc08070c652 on .

A call ratio back spreads inverse. This is a very negative approach that results in huge profits when the stock makes a significant downward move and losses when it moves just a little. You may still make a tiny profit if you were set up for a net credit and the stock rose.

Description

Involves selling a number of put options at a higher strike price and simultaneously buying a greater number of put options at a lower strike price, with both sets of options having the same expiration date. The trader will typically sell more put options at the higher strike price than they buy at the lower strike price, creating a “backspread” with a positive delta.

The goal of a ratio put backspread is to profit from a significant decrease in the price of the underlying asset. If the price of the underlying asset decreases enough, the long put options at the lower strike price will increase in value faster than the short put options at the higher strike price, resulting in a profit for the trader. However, if the price of the underlying asset does not decrease enough or increases, the trader will incur a loss.

Breakeven

Higher strike price of the short put options minus the premium received for those options, minus the lower strike price of the long put options and the premium paid for those options

Sweetspot

stock price goes way low

Max Profit

Limited to the difference between the strike prices of the options, minus any premiums received for the short put options

Maxl loss

is limited to the difference between the strike prices of the options, minus any premiums received for the short put options and any commissions or fees associated with the trade.

Ratio Call Backspread

Written by zohebc08070c652 on .

A very bullish approach results in large profits when the stock makes a significant upward move and losses when it moves just a little. Even if you’re set up for a net credit and the stock declines, you could still make a modest profit.

Description

Involves selling a number of call options at a lower strike price and simultaneously buying a greater number of call options at a higher strike price, with both sets of options having the same expiration date. The trader will typically sell more call options at the lower strike price than they buy at the higher strike price, creating a “backspread” with a negative delta.

The goal of a ratio call backspread is to profit from a significant increase in the price of the underlying asset. If the price of the underlying asset increases enough, the long call options at the higher strike price will increase in value faster than the short call options at the lower strike price, resulting in a profit for the trader. However, if the price of the underlying asset does not increase enough or decreases, the trader will incur a loss.

Sweetspot

Stock is very Bullish

Breakeven

the lower strike price of the short call options plus the premium received for those options, minus the higher strike price of the long call options and the premium paid for those options

Max Profit

Unlimited, as the price of the underlying asset could theoretically continue to increase without any upper bound

Max loss

is limited to the difference between the strike prices of the options, minus any premiums received for the short call options and any commissions or fees associated with the trade.

Long Box

Written by zohebc08070c652 on .

Neutral market by buying a call option and a put option on the same asset

Description

Involves buying a call option and a put option on the same underlying asset, with both options having the same expiration date and strike price. This strategy allows the trader to profit from a neutral market, as the trader will profit if the price of the underlying asset is above or below the strike price at expiration. The trader’s potential profit is limited to the difference between the strike price and the lower of the two premiums paid, minus any commissions or fees associated with the trade.

Sweet spot

Stock price falls below Leg 1

Breakeven

Stock price of the underlying asset is at or below the leg 1

Max profit

limited to the difference between the strike price and the lower of the two premiums paid

Max Loss

Limited to the higher of the two premiums paid, minus the lower of the two premiums paid

Short Combo

Written by zohebc08070c652 on .

This trade will only profit or lose if the stock moves below Leg 1 or above Leg 2 rather than between the strikes at expiration. It behaves like a short synthetic future when it is further away from expiration.

Alias

short call and put combo, a call and put spread

Description

Involves selling a call option and a put option on the same underlying asset, with both options having the same expiration date but different strike prices. This strategy allows the trader to profit from a narrow range of prices for the underlying asset, as the trader will receive a premium for selling both options but will also be obligated to buy or sell the underlying asset at the strike price of the option if it is exercised.

Sweet spot

Stock price falls way below Leg 1

Breakeven

Sum of the strike price of the call option and the premium received for the call option, minus the strike price of the put option and the premium received for the put option

Max profit

limited to the difference between the premiums received for the call and put options

Max Loss

Unlimited, as the value of the underlying asset, could theoretically continue to increase or decrease without any upper or lower bound.

Long Combo

Written by zohebc08070c652 on .

This trade will only profit or lose if the stock moves below Leg 1 or above Leg 2 rather than between the strikes at expiration. As it gets closer to expiration, it acts more like a synthetic future.

Alias

Long call & put combo, Call & put spread.

Description

Involves buying a call option and a put option on the same underlying asset, with both options having the same expiration date but different strike prices. This strategy allows the trader to profit from either an increase or a decrease in the price of the underlying asset, as the long call option will increase in value if the price of the underlying asset rises, while the long put option will increase in value if the price of the underlying asset falls. The trader’s potential profit is limited to the difference between the strike prices of the two options, minus any premiums paid and commissions or fees associated with the trade.

Breakeven

Sum of the strike price of the put option and the premium paid for the put option, minus the strike price of the call option and the premium received for the call option

Sweetspot

Stock price goes way above Leg 2

Max profit

Unlimited as stock goes way above Leg 2

Max Loss

limited to the premium paid for the put option, minus the premium received for the call option

Collar

Written by zohebc08070c652 on .

A tactic to use if you hold underlying stock and are cautiously bullish about it. It functions similarly to a covered call and protected put combined in that it limits your upside potential by selling the stock if the stock rises above Leg 2

Alias

Risk-reversal

Description

Involves purchasing a protective put option and simultaneously selling a covered call option on the same underlying security. The goal of this strategy is to protect against a potential decline in the price of the underlying security while also generating income through the sale of the call option.

In a collar strategy, the strike price of the put option is typically set below the current market price of the underlying security, while the strike price of the call option is set above the current market price. This creates a “collar” around the current market price of the underlying security, which helps to limit the potential losses from a decline in the price of the underlying security.

Breakeven

the strike price of the call option minus the premium collected from selling the call option, plus the strike price of the put option minus the premium collected

Sweetspot

Stock price goes above Leg 3

Max profit

Limited to the premium received from selling the call option, minus the cost of the put option

Max Loss

UnLimited, as the value of the underlying asset could theoretically continue to decrease

Short Guts

Written by zohebc08070c652 on .

The opposite of Long Guts, and similar to a short straddle.

Description

Involves selling a call option and a put option on the same underlying security with the same expiration date and strike price. This is also known as a short straddle. The goal of a short guts strategy is to profit from a narrow trading range or a decrease in volatility in the underlying security.

If the price of the underlying security remains relatively stable and doesn’t experience significant price movements, both options will expire worthless, and the trader can keep the premium collected from selling the options. If the price of the underlying security moves significantly in either direction, the trader may incur losses on one or both options.

 

Breakeven

the strike price of the call option plus the premium collected from selling the call and put options, minus the strike price of the put option minus the premium collected from selling the put option

 

Sweetspot

Stock price stays flat

 

Max profit

The limited, premium collected from selling the call and put options

 

Max loss

Unlimited if the stock price goes way down or way up.



Long Guts

Written by zohebc08070c652 on .

Similar to a strangle in that it has the same maximum reward, maximum risk, and possibility of profit, but is more expensive due to the reversal of the put and call positions.

Description

Involves buying a call option and a put option on the same underlying security with the same expiration date and strike price. This is also known as a long straddle. The goal of a long guts strategy is to profit from a significant price movement in either direction in the underlying security.

If the price of the underlying security moves significantly in either direction, the value of one of the options will increase, and the trader can profit by selling the option at a higher price. If the price of the underlying security remains relatively stable, both options will expire worthless, and the trader will incur a loss equal to the premium paid for the options.

Breakeven

strike price plus the premium paid for the options.

Sweetspot

Stock price goes way up or way down

Max profit

Unlimited as the price of the underlying security could move significantly in either direction

Max loss

Limited. And is equal to the premium paid for the options, which is realised if the underlying security remains relatively stable and both options expire worthless.

Strap

Written by zohebc08070c652 on .

Similar to a straddle, but with a stronger bullish bias achieved by purchasing twice as many calls. The stock must move in order to generate money, but it will now profit more from an upward movement than from a downward one.

Description

Involves buying two call options and selling one put option on the same underlying security with the same expiration date. This is also known as a bullish strap. The goal of a strap strategy is to profit from a rise in the price of the underlying security.

If the price of the underlying security rises significantly, the value of the two call options that have been purchased will increase, and the trader can profit by selling the options at a higher price. If the price of the underlying security remains relatively stable or falls, the options will expire worthless, and the trader may incur a loss on the put option that was sold, but this loss will be offset by the premium collected from selling the put option.

Breakeven

the strike price of the call option plus the premiums collected from selling the put options.

Sweetspot

Stock price goes way up

Max profit

Unlimited. Equal to the premium collected from selling the put & call options

Max loss

Limited to the net debit paid

Strip

Written by zohebc08070c652 on .

Similar to a straddle but with a stronger bearish bias achieved by purchasing twice as many puts. The stock must move in order to generate money, but it will now profit more from a downward movement than from an upward one.

Description

If the price of the underlying security falls significantly, the value of the two put options that have been sold will increase, and the trader can profit by buying back the options at a lower price. If the price of the underlying security remains relatively stable or rises, the options will expire worthless, and the trader will keep the premium collected from selling the options.

Selling two put options and one call option on the same underlying security with the same expiration date. This is also known as a bearish strip. The goal of a strip strategy is to profit from a decline in the price of the underlying security.

Breakeven

the strike price of the call option minus the premiums collected from selling the put options.

Sweetspot

Stock price goes way down

Max profit

Unlimited. Equal to the premium collected from selling the put & call options

Max loss

Limited to the net debit paid

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