Option strategy
Option strategies are trading strategies with derivative financial instruments . Option strategies are used to hedge , speculate or try to arbitrage . With an option strategy, the investor can to a falling, or rising laterally moving development of the underlying ( English underlying ) speculate, or that the volatility of the underlying falls or rises. With an option strategy, the investor can protect himself against a negative development of the underlying asset (covered option strategy). Option strategies can also be entered into independently of holding the underlying asset.
Basic positions
Basic positions are uncovered option strategies that can be taken from either a call option (call) or a put option (put), which can be bought (i.e. long ) and sold ( i.e. short ). An uncovered position is a short position in a call option that is not combined with a long position in the underlying asset . Options are conditional financial futures in which the buyer of an option cannot lose more than the option premium paid, but the seller of an option enters into a theoretically unlimited potential loss.
Backup positions
A hedging position (also: hedge position ) is a portfolio of options and the associated underlying asset (covered option strategy) . Either the losses from the share are covered in full or in part by the exercise gain for the options or the exercise losses for the options by the gains in the share, without increasing the risks:
Covered purchase option
In a covered call option ( English Covered Call ) acquires or holds to a base value and sells a call option on that underlying. This gives you income from the sale of options, which you generate because the entire construct does not experience any increase in value if the value of the underlying asset on the exercise date is above the exercise price . A covered purchase option is also associated with risks, especially if the underlying asset is highly volatile . A covered purchase option can only be assessed as a hedging position if the investor assumes that the price of the underlying will remain the same or increase slightly. If the underlying asset is acquired at the same time as the purchase option is sold, this strategy is also known as a buy-write strategy . If you already hold the underlying from a previous purchase and now sell a purchase option, this strategy is also known as overwrite . Usually both the underlying asset is held in the same brokerage account as the written calls. This strategy is the simplest and most widely used covered option strategy.
Protective put strategy
With a protective put strategy , you acquire the underlying asset and a put option . The point is to insure yourself against a risk of price decline with the put option. It is therefore an important means of implementing a capital preservation strategy . The difference between the protective put strategy and the covered put option is that with a protective put strategy the investor secures a minimum sale price and pays a premium for it, and with the covered put option the investor guarantees a maximum sale price and receives a discount. An investor usually uses a protective put strategy when he has unrealized gains from an increase in the value of the underlying asset and concerns about the future price development and wants to hedge against a negative price development of the underlying asset. The protective put strategy is a bullish option strategy.
Regardless of how much the underlying asset loses value during the term of the put, the put guarantees the investor the right to sell his shares at the put's strike price until the option expires. The put option therefore not only guarantees the investor the sale price at the exercise price of the option, but also gives him control over choosing the time of the sale of the underlying asset within the term of the option.
Reverse hedge
In a reverse hedge is underlying (underlying) not purchased, but on the contrary a short sale done ( short ). Hence the term "reverse" hedge; either calls long or puts short are used for this. The reverse hedge strategy is sometimes referred to as a simulated straddle . Ideally, with this strategy, the underlying short-sold underlying is very volatile. Very volatile underlyings such as B. volatile stocks have the advantage that the short seller does not have to pay the dividend to the buyer. Companies with a very volatile share price pay significantly less dividends to their shareholders. In a net reverse hedge (also 1: 1 reverse hedge, i.e. the amount of short sales corresponds to the amount of options bought or sold) with a long call, one speculates on rising share prices. In a net reverse hedge with short puts, one speculates on steady or slightly falling share prices.
Collar strategy
A collar strategy is a combination of buying a put option and selling a call option to hedge an existing equity position . By buying a put option (with a lower price limit), the shares are hedged against major downward movements. The expenses for the purchase of the put option can be reduced by the simultaneous sale of a purchase option (with a higher exercise price). If the expenses from the purchase of the put option and the proceeds from the sale of the purchase option exactly offset, one speaks of a “ zero-cost collar ”.
Spread positions
Spread positions are a portfolio of bought (long) and / or sold (short) options. A general distinction is made between price spreads and time spreads.
Price spreads
In the case of price spreads, a distinction is made between option positions based on the combination of options (buy and sell) from the same or different option classes.
Price spread positions of the same class
Both the bull spread and the bear spread can be formed with call options as well as with put options. Accordingly, one speaks of bull call spread (formation with buy options) and bull put spread (formation with put options) as well as bear call spread (formation with calls) and bear put spreads (formation with put options).
Bull spread
A bull spread consists of buying a call option and selling a call option at the same time. The exercise dates of the two options are the same, but the long position has a lower exercise price than the short position. Due to the put-call parity , a bull spread can be formed both with buy options (calls) and with put options (puts). Example position:
| Bull call spread | |
|---|---|
| Long | January 1, 2008 - 500 call |
| Short | January 1, 2008 - 600 Call |
| Bull put spread | |
|---|---|
| Long | January 1, 2008 - 500 put |
| Short | January 1, 2008 - 600 put |
Bear spread
A bear spread consists of buying a call option (long call) and simultaneously selling a call option (short call). The exercise times of the two options are the same, but the short position has a lower exercise price than the long position. Due to the put-call parity , a bear spread can be formed with both call options and put options. Example position:
| Bear call spread | |
|---|---|
| Long | January 1, 2008 - 600 Call |
| Short | January 1, 2008 - 500 call |
| Bear put spread | |
|---|---|
| Long | January 1, 2008 - 600 put |
| Short | January 1, 2008 - 500 put |
Price spread positions of different classes
Price spread positions are option positions from different option classes (call option and put option).
Straddle
When Straddle is (straddle long) on greatly varying rates, or at constant rates (short straddle) speculated , wherein the direction of the price change is irrelevant.
- Long straddle: (also called bottom straddle or bought straddle ): In a long straddle, a call option and a put option with the same underlying value, at the same exercise price and on the same expiry date are bought at the same time. The investor is speculating on an increasing volatility of the underlying.
- The market expectation of the investor is accordingly volatile, i. In other words, the investor expects the price of the underlying asset to change significantly. The potential for profit is theoretically unlimited. The loss potential is limited to the sum of the option premiums paid. Example position:
| Long straddle | |
|---|---|
| Long | January 1, 2008 - 200 call |
| Long | January 1, 2008 - 200 put |
- Short straddle: (also called top straddle or written straddle ) This is the reverse position of the long straddle, i.e. the sale of a call option and a put option for the same underlying, at the same exercise price and on the same expiry date. The investor assumes that the share price will move sideways, i.e. i.e., he does not expect any major changes in the price of the underlying. The profit potential is limited to the sum of the option premiums received. The potential loss is theoretically unlimited because of the short call in the event of a sharp rise in the price of the underlying. If the price falls sharply, the potential loss is limited to the strike price because of the short put. Example position:
| Short straddle | |
|---|---|
| Short | January 1, 2008 - 200 call |
| Short | January 1, 2008 - 200 put |
- Covered-written straddle: combination of a long underlying and a short put.
- Naked-written straddle: opening of the position without cover (without underlying)
Strangle
The strangle option position is a comparable option strategy to the straddle. It is also formed with a call option and a put option, but with different base prices and / or different expiration dates.
- Long strangle: With a long strangle, a call option and a put option with different base prices and / or different expiration dates are purchased at the same time. The market expectation of the investor is accordingly volatile, i. In other words, the investor expects the price of the underlying asset to change significantly, greater than with a long straddle. The potential for profit is theoretically unlimited. The loss potential is limited to the option prices paid. Example position:
| Long strangle | |
|---|---|
| Long | January 1, 2008 - 250 Call |
| Long | January 1, 2008 - 200 put |
- Short strangle: This is the reverse position of the long strangle, i.e. the sale of a call and a put with different base prices and / or different expiration dates. The investor assumes that the share price will move sideways, i.e. i.e., he does not expect any major changes in the price of the underlying. The profit potential is limited to the sum of the option premiums received. The potential loss is theoretically unlimited because of the short call in the event of a sharp rise in the price of the underlying. If the price falls sharply, the potential loss is limited to the strike price because of the short put. Example position:
| Short strangle | |
|---|---|
| Short | January 1, 2008 - 250 Call |
| Short | January 1, 2008 - 200 put |
Combined price spread positions of the same class
Price spread positions of the same class are a portfolio of bought (long) and sold (short) options. So it's just a matter of calls or just puts. The options can consist of different series, i. In other words, they differ according to the base price or remaining term. Depending on the ratio of options used, one speaks of x: y spreads. A credit position exists if there is an inflow of funds when the position is being built up, a debit position if funds are flowing out.
Butterfly spread
The butterfly spread is an option position that combines a bull price spread and a bear price spread. In principle, the butterfly spread is possible with calls and puts, but usually call positions are used.
- Long butterfly spread: With the long butterfly spread, two calls are bought and two calls are sold. The first call bought is bought at a lower price of the underlying ( in the money ) and the second call bought is bought at a higher price of the underlying ( out of the money ) . In addition, two calls are sold at the current price of the underlying ( at the money ) . Example position:
| Long butterfly spread | |
|---|---|
| Long | January 1, 2008 - 150 call (in the money) |
| Short | 2 contracts: January 1, 2008 - 160 call (at the money) |
| Long | January 1, 2008 - 170 call (out of the money) |
- Short butterfly spread: With the short butterfly spread, two calls are also bought and two calls are sold. In contrast to the long position above, the first call is sold at a lower price of the underlying asset (in the money) and a second call is also sold at a higher price of the underlying asset (out of the money) . In addition, two calls are bought at the current price of the underlying (at the money) . Example position:
| Short butterfly spread | |
|---|---|
| Short | January 1, 2008 - 150 call (in the money) |
| Long | 2 contracts: January 1, 2008 - 160 call (at the money) |
| Short | January 1, 2008 - 170 call (out of the money) |
Condor spread
The Condor spread is an option position in which two price spread positions are combined. The difference to the butterfly is that the Condor spread is based on four different exercise prices of the options compared to three exercise prices for the butterfly spread.
- Long Condor Spread: With the Long Condor Spread, like the Butterfly Spread, two calls are bought and two calls are sold. The first call bought is bought at a lower price of the underlying (in the money) and the second call bought is bought at a higher price of the underlying (out of the money) . In addition, two calls are sold. The first at the current price of the underlying (at the money) and the second slightly above the first. Example position:
| Long Condor spread | |
|---|---|
| Long | January 1, 2008 - 150 call (in the money) |
| Short | January 1, 2008 - 160 call (at the money) |
| Short | January 1, 2008 - 170 call (out of the money) |
| Long | January 1, 2008 - 180 call (out of the money) |
- Short Condor Spread: With the short Condor spread, two calls are also bought and two calls are sold. In contrast to the long position above, however, the first call is sold at a lower price of the underlying asset (in the money) and a second call is sold at a higher price of the underlying asset (out of the money) . In addition, two calls are bought. The first at the current price of the underlying (at the money) and the second slightly above the first. Example position:
| Short Condor spread | |
|---|---|
| Short | January 1, 2008 - 150 call (in the money) |
| Long | January 1, 2008 - 160 call (at the money) |
| Long | January 1, 2008 - 170 call (out of the money) |
| Short | January 1, 2008 - 180 call (out of the money) |
Ratio spread
With the ratio spread (also called ratio vertical spread ), long and short positions are built up with a different number of contracts.
- Ratio call spread: With a ratio call spread, one or more calls with a low strike price are bought and a larger number of calls with a higher strike price are sold at the same time. The calls all have the same remaining term. This combination position of long and short can be both a debit and a credit position. Example position:
| Ratio call spread | |
|---|---|
| Long | 1 contract: January 1, 2008 - 200 call (at the money) |
| Short | 4 contracts: January 1, 2008 - 250 call (out of the money) |
- Ratio Put Spread: With a ratio put spread, one or more puts are sold with a lower strike price and a smaller number of puts with a higher strike price are bought at the same time. This combination position of long and short can be both a debit and a credit position. Example position:
| Ratio put spread | |
|---|---|
| Short | 4 contracts: January 1, 2008 - 200 put (at the money) |
| Long | 1 contract: January 1, 2008 - 250 put (out of the money) |
Back spread
With the back spread (also called reverse spread), long and short positions are built up with different numbers of contracts.
- Back-Spread-Call: (also: Reverse-Ratio-Call-Spread ) Reversal of the Ratio-Call- Spread . Long positions are larger than short positions. Example position:
| Back spread call | |
|---|---|
| Long | 4 contracts: January 1, 2008 - 250 call (at-the-money or out-of-the-money) |
| Short | 1 contract: January 1, 2008 - 200 call (in the money) |
- Back-Spread-Put: (also: Reverse Ratio Put Spread ) Reversal of the ratio put spread. Long positions are larger than short positions. Example position:
| Back spread put | |
|---|---|
| Short | 1 contract: January 1, 2008 - 250 put (at the money) |
| Long | 4 contracts: January 1, 2008 - 200 put (out of the money) |
Combined price spread positions of different classes
Combined price spread positions of different classes are a portfolio of bought (long) and sold (short) options. These are combinations of calls or puts, which can consist of different series, i. In other words, they differ according to the base price or remaining term.
Box spread
The box spread is an option position that speculates on arbitrage opportunities resulting from valuation differences between calls and puts.
- Long Box: Long Box describes the purchase of the box spread. This consists of a bull spread with calls (also: bull call spread ) and a bear spread with puts (also: bear put spread ). This means that the investor who wants to make an arbitrage profit purchases a number of calls with a lower strike price and sells an equal number of calls with a higher strike price. At the same time, he purchases an equal number of puts with a higher strike price and sells the same number of puts with a lower strike price. Example position:
| Long box | |
|---|---|
| Long | January 2008 - 500 call |
| Short | January 2008 - 550 Call |
| Short | January 2008 - 500 put |
| Long | January 2008 - 550 put |
- Short Box: Short Box is the sale of the box spread. This consists of a bear spread with calls (also: bear call spread ) and a bull spread with puts (also: bull put spread ). This means that the investor who wants to make an arbitrage profit acquires a number of calls with a higher strike price and sells an equal number of calls with a lower strike price. At the same time, he purchases an equal number of puts with a lower strike price and sells the same number of puts with a higher strike price. Example position:
| Short box | |
|---|---|
| Long | January 1, 2008 - 550 Call |
| Short | January 1, 2008 - 500 call |
| Short | January 1, 2008 - 550 put |
| Long | January 1, 2008 - 500 put |
- The arbitrage profit that can be achieved from a possible inequality from the valuation of the options and thus the option prices are accounted for by the transaction costs and any carrying charge, i.e. H. the cost of financing a net target position.
Time spreads
A time spread (also called time spread , calendar spread or horizontal spread ) combines options with the same strike price. With a bull-time spread , a short-term option is sold and a long / longer-term option is bought. With a bear time spread , one short-term option is bought and one with a long / longer term is sold. The strategy works with both call and sell options.
Bull-time spread
A bull-time-spread (also called bull-calendar-spread ) consists of a combination of options with the same strike price but different maturity dates. Due to the put-call parity , a bull-time spread can be formed with calls as well as puts.
| Bullish call time spread | |
|---|---|
| Long | 3 months - 500 call |
| Short | 1 month - 500 call |
| Bullish put time spread | |
|---|---|
| Long | 3 months - 500 put |
| Short | 1 month - 500 put |
Bear time spread
A Bear-Time-Spread (also called Bear-Calendar-Spread ) consists of a combination of options with the same strike price but different due dates. Due to the put-call parity , a bear time spread can be formed with calls as well as puts.
| Bearish call time spread | |
|---|---|
| Long | 1 month - 500 call |
| Short | 3 months - 500 call |
| Bearish put-time spread | |
|---|---|
| Long | 1 month - 500 put |
| Short | 3 months - 500 put |
Combined time spread positions
As with combined price spread positions, the options can consist of different series, i. In other words, they differ according to the base price or remaining term: depending on the ratio of options used, one speaks of x: y spreads here too. A credit position exists if there is an inflow of funds when the position is built up, a debit position if funds flow out.
Ratio-time spread
A ratio-time-spread (also called ratio-vertical-time-spread ) is made up of more long options than short options on the same underlying. This position benefits from a strong movement in the underlying asset in both directions.
- Ratio Call Time: The basic structure of this option position is similar to the bull time spread, but it consists of a larger number of calls sold.
- Ratio Put Time: The basic structure of this option position is similar to the bear time spread, but consists of a larger number of sold puts.
Combination of price spreads and time spreads
Diagonal spread
A diagonal spread consists of options with different strike prices and different expiration dates. A credit position exists if there is an inflow of funds when the position is built up, a debit position if funds flow out.
- Diagonal bull spread: Long calls (in the money) with a long term and short calls (out of the money) with a short term. Example position:
| Bull call spread | Diagonal bull spread | |
| Long | December 150 call for € 10 | January 150 call at € 15 |
| Short | December 170 call for € 2 | December 170 call for € 2 |
| Target position | 8 € | 13 € |
- Diagonal bear spread: Long calls (in the money) with a short term and short calls (out of the money) with a long term.
| Bear call spread | Diagonal bear market spread | |
| Short | December 150 call at € 12 | December 150 call at € 12 |
| Long | December 170 call at € 4 | February 170 call for € 14 |
| Credit position € 8 | Target position € 2 |
Synthetic positions
Synthetic long
The investor expects a strong upward movement in the underlying and builds up a synthetic long position by buying a call and simultaneously selling a put with the same remaining term. This means that the profit that occurs if the price forecast is confirmed corresponds to almost the same profit that would be achieved by buying a corresponding number of the underlying asset. Example position:
| Synthetic long | |
|---|---|
| Long | January 1, 2008 - 350 Call |
| Short | January 1, 2008 - 300 put |
Synthetic short
The investor expects a strong downward movement in the underlying asset and builds a synthetic short sale by buying a put and simultaneously selling a call with the same remaining term . Example position:
| Synthetic short | |
|---|---|
| Long | January 1, 2008 - 300 put |
| Short | January 1, 2008 - 350 Call |
literature
- Michael Bloss, Dietmar Ernst: Derivatives. Handbook for financial intermediaries and investors. Oldenbourg, Munich a. a. 2008, ISBN 978-3-486-58354-0 (Edition Derivate) .
- Christian Eck, Matthias S. Riechert: Professional Eurex Trading. Basics, strategies and opportunities with options and futures. 3rd revised edition. FinanzBook-Verlag, Munich 2006, ISBN 3-89879-218-8 .
- Benjamin Feingold, Roland Lang: Trading with Futures and Options. A guide for the retail investor. FinanzBook-Verlag, Munich 2004, ISBN 3-89879-066-5 .
- Hans Peter Steinbrenner: Professional option deals. Correctly understand modern assessment methods. Wirtschaftsverlag Ueberreuter, Vienna a. a. 2001, ISBN 3-7064-0724-8 (Ueberreuter Wirtschaft. Option transactions in theory and practice) .
- Hans E. Zahn: Hand dictionary on futures, options and innovative financial instruments. Fritz Knapp Verlag, Frankfurt am Main 1991, ISBN 3-7819-2029-1 .
Individual evidence
- ^ J. Panda, RK Dash: Contemporary Issues on Financial Market . 1998.
- ^ R. Corwin Grube, Don B. Panton, J. Michael Terrell: Risks and rewards in covered call positions . In: The Journal of Portfolio Management, Winter 1979, Volume 5, No. 2, pp. 64-66.
- ^ A b F. Black: Fact and Fantasy in the Use of Options . In: Financial Analysts Journal, Volume 31, No. 4 (July-August 1975), pp. 36-41 + 61-72.
- ^ The Options Industry Council (OIC): Options Strategies: Covered Call, 2009.
- ↑ S. Figlewski, NK Chidambaran, S. Kaplan: Evaluating the Performance of the Protective Put Strategy . In: Financial Analysts Journal, Volume 49, No. 4 (July-August 1993), pp. 46-56 + 69.
- ↑ See Nasser Saber: Speculative Capital Volume 3 - The Enigma of Options. 2006. p. 170.
- ↑ a b c d e Lawrence G McMillan: Options as a Strategic Investment, NYIF, 4th Edition, (February 5, 2002), pp. 123 ff., ISBN 0-7352-0197-8 .
- ^ John F. Marshall: Dictionary of Financial Engineering (Wiley Series in Financial Engineering) . 2000, ISBN 0-471-24291-8 , p. 38.
- ^ E. Chevallier, HH Muller: Risk Allocation in Capital Markets: Portfolio Insurance, Tactical Asset Allocation and Collar Strategies. In: Insurance: Mathematics and Economics Volume 16, No. 3, July 1995, Elsevier, pp. 287-287 (1).
- ↑ Zhongfeng Qin, Xiang Li: Expected Payoff of Trading Strategies Involving European Options for Fuzzy Financial Market. Department of Mathematical Sciences, Tsinghua University, Beijing 100084, China.
- ^ RW Kolb: Understanding Options, John Wiley & Sons (March 8, 1995), ISBN 0-471-08554-5 .
- ↑ a b c S. Natenberg: Option Volatility & Pricing: Advanced Trading Strategies and Techniques . McGraw-Hill Professional; 2nd revised edition (August 1, 1994), pp. 139 ff., ISBN 1-55738-486-X .
- ^ S. Mahfoud: Ratio Combinations . In: Euro-Mediterraneam Economics and Finance Review, Volume 1, No. 5, December 2006, p. 235.
- ^ A b H. N. Hanson: Options and Futures: New Route to Risk / Return Management . In: Options and Futures: Strategic Tools for Portfolio Management . Institute of Chartered Financial Analysts, 1984.
- ^ HR Stoll, RE Whaley: The New Option Markets . In: A. Peck (Ed.): Futures Markets: Their Economic Role . American Enterprise Institute, Washington DC, 1985, pp. 205-289.
- ↑ S. Figlewski, GP Webb: Options, Short Sales, and Market Completeness . In: The Journal of Finance, Vol. 48, No. 2 (June 1993), pp. 761-777.