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Option strategy book pdf

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Options Trading Strategies Quick Guide With Free PDF by Stelian Olar For investors in every field, hedging against the unknown and the inherent risks in their core business should be the An option is a conditional derivative contract that permits contract buyers to either buy or sell an asset as a predetermined price. To make it happen, the sellers charge the buyers an amount Download PDF - Option Strategies: Going Bull Or Bear In The Option Traders' Market [PDF] [7nfhc6h0bqm0]. “The author has written a truly complete reference book on options trading, When an investor purchases one option contract for $1 they are in fact paying for $1 for each share they have the right to purchase. In this case, one contract would cost an investor $ FT Press offers excellent discounts on this book when ordered in quantity for bulk purchases or special sales. For more information, please contact U.S. Corporate and Government Sales, 1 ... read more

As a result, the prices of the options fall, and a buyback of the position is cheaper than the premium paid at the beginning. For a long straddle, the options trader is the owner of the option and benefits from an increase in value. The strategy starts at a loss because two premiums had to be paid.

The loss for this cannot increase any higher. For the strategy to generate profit, however, significant price movements are necessary. The direction of the movement is irrelevant.

Both call short call and put options short put are sold on the same underlying asset, with the same strike and maturity date. A short straddle obliges the options trader to buy or sell a stock at a set price, provided that one of the two options contained is tendered.

The option premium received is higher than on its own with a short call or short put by selling two options. The long strangle involves buying a call option long call and buying a put option long put of the same underlying asset with the same expiry date. Remember, for the Long Straddle, different strikes are chosen. Since the options are usually out of money, the long strangle is cheaper. In return, the price increase or drop must be even stronger than with a long straddle to generate profit.

The fundamental objective of this strategy is also to benefit from changes in the share price in both directions. The cost of a long strangle is comparatively high compared to other strategies. It is suitable for volatile stocks. Here, a put option with strike A short put and a call option with strike B are sold short call.

The underlying asset price should be between strike A and B on the due date for maximum profit. Both options are ideally worthless. Experts in options trading use this strategy, just like a short straddle, to benefit from falling implied volatility. In market phases with high volatility, the options may be overvalued. The goal is to close the position at a profit as soon as volatility drops. The option premium received for the sale of the call option compensates for the cost of purchasing the option.

This strategy limits the risk. In return, the maximum profit is also limited and not unlimited, as with the long call. The strategy involves selling puts short put to a strike A and buying puts long put at a higher strike price B on the same underlying asset.

The spread has the same number of puts with the same expiration date. Selling a cheaper put with strike A helps to reduce the cost of the purchased put with Strike B. In turn, the potential gain of this strategy is limited.

The Collar option strategy is a mixture of a covered call and a protective put on the same underlying asset. A put is bought to sell the underlying asset — for example, a share — at Strike A.

The sale of the call option goes hand in hand with the obligation to sell at Strike B. Within this framework, the option premium for the call option compensates for the cost of the put. This strategy is recommended for slightly bearish, neutral to bullish market opinion and the willingness to sell the shares if necessary. Remember that a call option gives the right to buy a particular underlying asset at a future date and a fixed price.

The breakeven point is equal to the strike minus the option premium. Thus, it is usually below the price at the time of sale. For beginner investors , stock options might be overwhelming. This guide has equipped you with the knowledge of relevant options trading terminologies and easy-to-implement option strategies for every market phase.

In the end, you should only trade options depending on the market circumstances and expectations. Stelian is an aggressive, success-driven, and highly collaborative entrepreneurial trader with 13 years of experience trading within financial markets. Options are divided into two major categories; call and put options.

A call option is a financial markets contract that gives the buyer the right but not the obligation to purchase an agreed security at a predetermined price within a specific time period. The security could be a stock, commodity, bond, or other assets. The buyer of a call option profits when the price of the underlying security increases. With a put option, the owner has the right but not the obligation to sell an agreed asset at a predetermined price within a specific time frame.

The buyer of the put option has the right to sell the asset once it hits the predetermined price. We multiply by because, in most options contracts, the option is to buy shares. A deliverable settled option is a type of option that requires the transfer of the underlying stocks or asset that the option has a contract on.

For some options contracts they are cash settled. This means the difference between the strike price and the expiry price will be paid out in cash. Some of the risks associated with options trading include;.

There are numerous options for trading strategies. The popular ones include;. This strategy is popular among options traders because it generates income while reducing the risks of being long on an asset. It involves buying a stock and simultaneously writing or selling a call option on the same asset. With this strategy, the investor buys an asset and simultaneously purchases put options for the same number of shares.

The holder of this put option can sell the stocks at the set price, with each contract worth shares. The long strangle strategy involves a trader buying an out-of-the-money call option and an out-of-the-money put option simultaneously, on the same underlying security, and with the same expiration date.

This involves a combination of two different contracts. LONG COMBO COVERED PUT LONG STRADDLE SHORT STRADDLE LONG STRANGLE SHORT STRANGLE BULL CALL SPREAD STRATEGY BULL PUT SPREAD STRATEGY BEAR CALL SPREAD STRATEGY BEAR PUT SPREAD LONG CALL BUTTERFLY SHORT CALL BUTTERFLY LONG CALL CONDOR SHORT CALL CONDOR Introduction to Options 12 2. Option Strategies 86 3. Reprinted : by NSE Academy Ltd. Last updated of the Module : Copyright © by NSE Academy Ltd. National Stock Exchange of India Ltd.

NSE Exchange Plaza, Bandra Kurla Complex, Bandra East , Mumbai INDIA All content included in this book, such as text, graphics, logos, images, data compilation etc.

are the property of NSE. This book or any part thereof should not be copied, reproduced, duplicated, sold, resold or exploited for any commercial purposes. Furthermore, the book in its entirety or any part cannot be stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise. In return for granting the option, the seller collects a payment the premium from the buyer.

Exchange- traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among a large number of investors. They provide settlement guarantee by the Clearing Corporation thereby reducing counterparty risk.

Options can be used for hedging, taking a view on the future direction of the market, for arbitrage or for implementing strategies which can help in generating income for investors under various market conditions. In India, they have a European style settlement. Nifty options, Mini Nifty options etc.

A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price. They have an American style settlement. It is also referred to as the option premium. A call option on the index is said to be in-the-money when the current index stands at a level higher than the strike price i. If the index is much higher than the strike price, the call is said to be deep ITM.

In the case of a put, the put is ITM if the index is below the strike price. An option on the index is at- the-money when the current index equals the strike price i. A call option on the index is out-of-the-money when the current index stands at a level which is less than the strike price i.

If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call is Max[0, St — K ] which means the intrinsic value of a call is the greater of 0 or St — K.

Similarly, the intrinsic value of a put is Max[0, K — St], i. the greater of 0 or K — St. K is the strike price and St is the spot price. Both calls and puts have time value.

An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. At expiration, an option should have no time value. OPTIONS PAYOFFS The optionality characteristic of options results in a non-linear payoff for options. In simple words, it means that the losses for the buyer of an option are limited; however, the profits are potentially unlimited.

For a writer seller , the payoff is exactly the opposite. His profits are limited to the option premium; however, his losses are potentially unlimited. These non- linear payoffs are fascinating as they lend themselves to be used to generate various payoffs by using combinations of options and the underlying.

We look here at the six basic payoffs pay close attention to these pay-offs, since all the strategies in the book are derived out of these basic payoffs.

Payoff profile of buyer of asset: Long asset In this basic position, an investor buys the underlying asset, ABC Ltd. Figure 1. The investor bought ABC Ltd. If the share price goes up, he profits. If the share price falls he loses. Payoff profile for seller of asset: Short asset In this basic position, an investor shorts the underlying asset, ABC Ltd. The investor sold ABC Ltd. If the share price falls, he profits. If the share price rises, he loses. Payoff profile for buyer of call options: Long call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option.

If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher the spot price more is the profit he makes.

If the spot price of the underlying is less than the strike price, he lets his option expire un-exercised. His loss, in this case, is the premium he paid for buying the option. As can be seen, as the spot Nifty rises, the call option is in-the-money. If upon expiration, Nifty closes above the strike of , the buyer would exercise his option and profit to the extent of the difference between the Nifty-close and the strike price. The profits possible with this option are potentially unlimited. However, if Nifty falls below the strike of , he lets the option expire.

His losses are limited to the extent of the premium he paid for buying the option. Payoff profile for writer seller of call options: Short call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. If upon expiration, the spot price exceeds the strike price, the buyer will exercise the option on the writer.

Hence as the spot price increases, the writer of the option starts making losses. Higher the spot price more is the loss he makes. If upon expiration the spot price of the underlying is less than the strike price, the buyer lets his option expire un-exercised and the writer gets to keep the premium.

As the spot Nifty rises, the call option is in-the-money and the writer starts making losses. If upon expiration, Nifty closes above the strike of , the buyer would exercise his option on the writer who would suffer a loss to the extent of the difference between the Nifty-close and the strike price. Payoff profile for buyer of put options: Long put A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option.

If upon expiration, the spot price is below the strike price, he makes a profit. Lower the spot price more is the profit he makes. If the spot price of the underlying is higher than the strike price, he lets his option expire un-exercised. As can be seen, as the spot Nifty falls, the put option is in-the-money. If upon expiration, Nifty closes below the strike of , the buyer would exercise his option and profit to the extent of the difference between the strike price and Nifty-close.

The profits possible on this option can be as high as the strike price. However if Nifty rises above the strike of , he lets the option expire. If upon expiration, the spot price happens to be below the strike price, the buyer will exercise the option on the writer. If upon expiration the spot price of the underlying is more than the strike price, the buyer lets his option un-exercised and the writer gets to keep the premium. As the spot Nifty falls, the put option is in-the-money and the writer starts making losses.

If upon expiration, Nifty closes below the strike of , the buyer would exercise his option on the writer who would suffer a loss to the extent of the difference between the strike price and Nifty- close. However, to protect your investment if the stock price falls, you buy a Put Option on the stock.

This gives you the right to sell the stock at a certain price which is the strike price of the Put Option. The strike price can be the price at which you bought the stock ATM strike price or lower OTM strike price. In case the price of the stock rises you get the full benefit of the price rise. However, if the price of the stock falls, exercise the Put Option remember Put is a right to sell. You have capped your loss in this manner because the Put Option stops your further losses.

It is a strategy with a limited loss and after subtracting the Put premium unlimited profit from the stock price rise. The payoff of this strategy looks like a long Call Option and therefore, it is also called as Synthetic Call!

But the strategy is not to buy Call Option. Here you have taken an exposure to an underlying stock with the aim of holding it and reaping the benefits of price rise, dividends, bonus shares, rights issue, etc.

and at the same time insuring against an adverse price movement. In simple buying of a Call Option, there is no underlying position in the stock but is entered into only to take advantage of price movement in the underlying stock.

When to use: When ownership Example is desired of stock yet investor Mr. XYZ is bullish about ABC Ltd stock. He buys ABC is concerned about near-term Ltd.

To downside risk. The outlook is protect against fall in the price of ABC Ltd. his risk , conservatively bullish. he buys an ABC Ltd. XYZ pays of ABC Ltd. XYZ pays This is a strategy which limits the loss in case of fall in the market but the potential profit remains unlimited when the stock price rises. A good strategy when you buy a stock for the medium or long term, with the aim of protecting any downside risk.

The pay-off resembles a Call Option buy and is therefore called as Synthetic Long Call. COVERED CALL You own shares in a company which you feel may rise but not much in the near term or at best stay sideways. You would still like to earn an income from the shares. The covered call is a strategy in which an investor Sells a Call option on a stock he owns netting him a premium.

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Log in with Facebook Log in with Google. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link. Need an account? Click here to sign up. Download Free PDF. Options Trading Strategies Module. Manisha Khurana. Module Name Test No. Module of IMS Proschool Modules of Finitiatives Learning India Pvt.

and IMS Proschool is available on our website: www. NSE Academy straddles the entire spectrum of financial courses for students of standard VIII and right up to MBA professionals. NSE Academy has tied up with premium educational institutes in order to develop pool of human resources having right skills and expertise which are apt for the financial market.

Guided by our mission of spreading financial literacy for all, NSE Academy has constantly innovated its education template, this has resulted in improving the financial well-being of people at large in society. Our education courses have so far facilitated more than The NCFM offers certifications ranging from the Basic to Advanced. through their login id. CONTENTS 1. OPTIONS PAYOFFS Payoff profile of buyer of asset: Long asset Payoff profile for seller of asset: Short asset Payoff profile for buyer of call options: Long call Payoff profile for writer seller of call options: Short call Payoff profile for buyer of put options: Long put Payoff profile for writer seller of put options: Short put COVERED CALL LONG COMBO COVERED PUT LONG STRADDLE SHORT STRADDLE LONG STRANGLE SHORT STRANGLE BULL CALL SPREAD STRATEGY BULL PUT SPREAD STRATEGY BEAR CALL SPREAD STRATEGY BEAR PUT SPREAD LONG CALL BUTTERFLY SHORT CALL BUTTERFLY LONG CALL CONDOR SHORT CALL CONDOR Introduction to Options 12 2.

Option Strategies 86 3. Reprinted : by NSE Academy Ltd. Last updated of the Module : Copyright © by NSE Academy Ltd. National Stock Exchange of India Ltd. NSE Exchange Plaza, Bandra Kurla Complex, Bandra East , Mumbai INDIA All content included in this book, such as text, graphics, logos, images, data compilation etc.

are the property of NSE. This book or any part thereof should not be copied, reproduced, duplicated, sold, resold or exploited for any commercial purposes.

Furthermore, the book in its entirety or any part cannot be stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise. In return for granting the option, the seller collects a payment the premium from the buyer. Exchange- traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among a large number of investors.

They provide settlement guarantee by the Clearing Corporation thereby reducing counterparty risk. Options can be used for hedging, taking a view on the future direction of the market, for arbitrage or for implementing strategies which can help in generating income for investors under various market conditions. In India, they have a European style settlement. Nifty options, Mini Nifty options etc. A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price.

They have an American style settlement. It is also referred to as the option premium. A call option on the index is said to be in-the-money when the current index stands at a level higher than the strike price i. If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price. An option on the index is at- the-money when the current index equals the strike price i.

A call option on the index is out-of-the-money when the current index stands at a level which is less than the strike price i. If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price. The intrinsic value of a call is the amount the option is ITM, if it is ITM.

If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call is Max[0, St — K ] which means the intrinsic value of a call is the greater of 0 or St — K.

Similarly, the intrinsic value of a put is Max[0, K — St], i. the greater of 0 or K — St. K is the strike price and St is the spot price. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM.

At expiration, an option should have no time value. OPTIONS PAYOFFS The optionality characteristic of options results in a non-linear payoff for options. In simple words, it means that the losses for the buyer of an option are limited; however, the profits are potentially unlimited. For a writer seller , the payoff is exactly the opposite. His profits are limited to the option premium; however, his losses are potentially unlimited.

These non- linear payoffs are fascinating as they lend themselves to be used to generate various payoffs by using combinations of options and the underlying. We look here at the six basic payoffs pay close attention to these pay-offs, since all the strategies in the book are derived out of these basic payoffs. Payoff profile of buyer of asset: Long asset In this basic position, an investor buys the underlying asset, ABC Ltd. Figure 1. The investor bought ABC Ltd. If the share price goes up, he profits.

If the share price falls he loses. Payoff profile for seller of asset: Short asset In this basic position, an investor shorts the underlying asset, ABC Ltd. The investor sold ABC Ltd. If the share price falls, he profits. If the share price rises, he loses. Payoff profile for buyer of call options: Long call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option.

If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher the spot price more is the profit he makes. If the spot price of the underlying is less than the strike price, he lets his option expire un-exercised. His loss, in this case, is the premium he paid for buying the option.

Options Trading Strategies Quick Guide With Free PDF,Follow Us Social

Download PDF - Option Strategies: Going Bull Or Bear In The Option Traders' Market [PDF] [7nfhc6h0bqm0]. “The author has written a truly complete reference book on options trading, An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a security at a predetermined price on or before a predetermined Thank you for downloading “The Options Income Playbook”. This book is designed for beginning, intermediate and advanced traders. The authors in this book are leading experts in 13/05/ · Trading binary options require an easy-to-use trading strategy with at least a 55% win rate to make money with binary trading! (You also need to keep your emotions under Options Trading Strategies Quick Guide With Free PDF by Stelian Olar For investors in every field, hedging against the unknown and the inherent risks in their core business should be the When an investor purchases one option contract for $1 they are in fact paying for $1 for each share they have the right to purchase. In this case, one contract would cost an investor $ ... read more

This strategy creates a net debit for the investor. NSE Academy has tied up with premium educational institutes in order to develop pool of human resources having right skills and expertise which are apt for the financial market. Payoff profile for seller of asset: Short asset The covered call is a strategy in which an investor Sells a Call option on a stock he owns netting him a premium. Figure 1. He reduces the cost Risk: If the Stock Price falls to zero, of buying the stock by this strategy. If the spot price of the underlying is higher than the strike price, he lets his option expire un-exercised.

The seller of an option has — in the case of the exercise of the option by the buyer — the obligation to deliver the underlying asset at the pre-agreed price in the case of a call option or to buy the underlying asset in the case of a put option. The strategy starts at a loss because two premiums had to be paid. The difference with direct stock trading is that the price is already fixed, although the transaction date is in the future. Module of IMS Proschool Modules of Finitiatives Learning India Pvt. A does not a short position on the Call option think that the price of XYZ Ltd, option strategy book pdf. Here you have taken an exposure to an underlying stock with the aim of holding it and reaping the benefits of price rise, dividends, bonus shares, rights issue, etc. The sale of the call option goes hand option strategy book pdf hand with the obligation to sell at Strike B.

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