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Chapter 12
Trading Strategies Involving
Options
Quyen Do Nguyen, PhD
Corporate Finance Department
Faculty of Banking and Finance
Foreign Trade University

Strategies to be Considered
Bond plus option to create principal protected
note
Stock plus option
Two or more options of the same type (a spread)
Two or more options of different types (a
combination)

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Positions in an Option & the Underlying

Profit Profit

K
K ST ST
(a)
(b)
Profit Profit

K
ST K ST

(c) (d)
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Bull Spread Using Calls

Profit

ST
K1 K2

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Bull Spread Using Puts

Profit

K1 K2 ST

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Bear Spread Using Puts

Profit

K1 K2 ST

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Bear Spread Using Calls

Profit

K1 K2 ST

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Box Spread
A combination of a bull call spread and a bear
put spread
If all options are European a box spread is
worth the present value of the difference
between the strike prices
If they are American this is not necessarily so
(see Business Snapshot 11.1)

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Butterfly Spread Using Calls

Profit

K1 K2 K3 ST

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Butterfly Spread Using Puts

Profit

K1 K2 K3 ST

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Calendar Spread Using Calls

Profit

ST
K

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Calendar Spread Using Puts

Profit

ST
K

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A Straddle Combination
Profit

K ST

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Strip & Strap

Profit Profit

K ST K ST

Strip Strap
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A Strangle Combination
Profit

K1 K2
ST

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