Bull spread / Bear spread
Bull spead: You expect underlying prices (eg. stock prices) to rise (slightly) Bear spead: You expect underlying prices (eg. stock prices) to fall (slightly).(black horizontal line is the price of the underlying)
Whats a short / long straddle?
Short Straddle: If you believe the market volatility will be low in the upcoming days/weeks a short straddle might be the right option strategy for you. You buy a short call as well as a short put. Probably the buyer of the call and put won’t exercise his options and you make a profit (2 x premium) Long Straddle: If […]
Short Call / Short Put
Short Call (You think the underlying will fall or stagnate in the future) You are obliged to sell an underlying at some point in the future if the option holder exercises his option. You think that the underlying price will fall or stagnate in the future. If the underlying falls the buyer won’t exercise his option and you stay with […]
Long Call / Long Put
Long Call (You imagine the underlyings price will rise strongly) You have the right to buy the underlying at a specified date (European futures) or timeframe (American futures) for a specified price. You expect the prices of the underlying to rise (Long). Your risk is limited: The maximum you can lose is the option premium. Example: You buy a Long […]
Long vs Short Future Strategies
Long Future If you believe underlying prices will rise. Short future If you believe underlyings price will fall
Who uses derivatives ?
Institutional clients Banks act as Market Makers (they act as dealers who provide binding buy and sell prices to the market) Other institutional clients Funds etc. often sell Calls on parts of their portfolios (if they want to lock in some profits). Furthermore, they use futures and options for risk management purposes. Retail investors Retail investors often use derivatives to […]
Why investing in derivatives might be your thing?
You could make a profit no matter in what direction the market moves You could invest with less capital then you would need on the spot market You could make a lot of profit (by using leverage) With a derivative you could protect yourself against price losses In case of options you can only exercise them if they generate you […]
Whats the worth of an option?
There are 4 main things that influence the price of an option. First, the intrinsic value. This is the difference between the underlying value (eg. stock price) and strike price. Formula = Underlying price – Strike price. However the intrinsic value cant be negative (as the share price cant be negative). Therefore only the money option has an intrinsic value. […]
Short call option vs short put option
While the risk of a short-call option is unlimited, as the stock price can theoretically rise infinitely. The risk of a short-put option is limited by the agreed exercise price.
Quick overview short/long and put/call options
Option Description Long/Call Buyer thinks underlyings price will rise. He has the right (but not the duty) to buy the underlying at the specifed (in the option contract) date and price. Long/Put Buyer thinks underlyings price will fall. He has the right (but not the duty) to sell underlying at the specifed (in the option contract) date and price. Short/Call […]