strategy in call_and_put_options

Jun 28th, 2015
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Definition Microsoft example Logic behind the protective put Synthetic options

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SPREADSBefore We start !!!!!!!!!!!!What are OptionSpreads???????????????In options trading, an option spread is createdby the simultaneous purchase and saleof options of the same class on the sameunderlying security but with different strikeprices and/or expiration dates.Any spread that is constructed using callscan be referred to as a call spread.VERTICLE SPREADS The vertical spread is an option spread strategy whereby theoption trader purchases a certain number of options andsimultaneously sell an equal number of options of thesame class, same underlying security, same expiration date, butat a different strike price. Vertical spreads limit the risk involved in the options trade butat the same time they reduce the profit potential. They can be created with either all calls or all puts, and can bebullish or bearish.Bull Vertical Spreads Bull vertical spreads are employed when the option trader isbullish on the underlying security and hence, they are designedto profit from a rise in the price of the underlying asset. They can be constructed using calls or puts and are knownas bull call spread and bull put spread respectively. While they have similar risk/reward profiles, the bull callspread is entered on a debit while the bull put spread can beestablished on a credit. Hence, the bull call spread is also called a vertical debitspread while the bull put spread is sometimes referred to as avertical credit spread.

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