FIN 4504 Lecture Notes - Lecture 23: Covered Call, Straddle, Risk Management
21 Nov 2016
School
Department
Course
Professor
FIN 4504
Lecture 23
Options Market
• Option Strategies
- A large variety of payoff patterns can be achieved by
combining puts and calls with various exercise prices
> Protective Put
> Covered Call
> Straddle
> Bullish Spread
> Collar
- Protective put
> Asset combined with put option that guarantees
iiu poeeds eual to put’s eeise pie
> For investors who want to buy stock but are
unwilling to bear potential losses beyond some given
level
> Risk management: strategies to limit the risk of
a portfolio
- Covered Calls
> Writing call on asset together with buying asset
> Popular investment strategy among institutional
investors
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
A large variety of payoff patterns can be achieved by combining puts and calls with various exercise prices. > asset combined with put option that guarantees (cid:373)i(cid:374)i(cid:373)u(cid:373) p(cid:396)o(cid:272)eeds e(cid:395)ual to put"s e(cid:454)e(cid:396)(cid:272)ise p(cid:396)i(cid:272)e. > for investors who want to buy stock but are unwilling to bear potential losses beyond some given level. > risk management: strategies to limit the risk of a portfolio. > writing call on asset together with buying asset. > w(cid:396)itte(cid:374) (cid:272)all is (cid:862)(cid:272)ove(cid:396)ed(cid:863) (cid:271)(cid:455) the asset the(cid:455) hold. > the written call guarantees the stock sale will occur as planned. > combination of call and put, each with same exercise price and expiration date. > useful strategy for investors who believe that stock price will move but are uncertain about the direction of the move. > long straddle is to buy call and put (you believe that price will move a lot).
