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    Payoff Option Strategies

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    Vishal Rana
    The long call option strategy involves buying a call option to benefit from upward movement in the underlying stock's price. The maximum risk is limited to the premium paid. There is no upper limit to potential gains if the stock price rises above the break-even point of strike price plus premium. The bull call ladder strategy uses a combination of one long call and two short calls to benefit from stock price increases within a defined range. The maximum risk is unlimited but returns are limited, with the break-even point being the sum of the two short call strike prices minus the long call strike price plus net premium received. The short-a-safe strategy aims to benefit from limited downward movement in the stock price by selling a

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    Payoff Option Strategies

    Uploaded by

    Vishal Rana
    49 views11 pages
    The long call option strategy involves buying a call option to benefit from upward movement in the underlying stock's price. The maximum risk is limited to the premium paid. There is no upper limit to potential gains if the stock price rises above the break-even point of strike price plus premium. The bull call ladder strategy uses a combination of one long call and two short calls to benefit from stock price increases within a defined range. The maximum risk is unlimited but returns are limited, with the break-even point being the sum of the two short call strike prices minus the long call strike price plus net premium received. The short-a-safe strategy aims to benefit from limited downward movement in the stock price by selling a

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    bull call ladder,long call option strategy

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    Payoff option strategies

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    The long call option strategy involves buying a call option to benefit from upward movement in the underlying stock's price. The maximum risk is limited to the premium paid. There is no upper limit to potential gains if the stock price rises above the break-even point of strike price plus premium. The bull call ladder strategy uses a combination of one long call and two short calls to benefit from stock price increases within a defined range. The maximum risk is unlimited but returns are limited, with the break-even point being the sum of the two short call strike prices minus the long call strike price plus net premium received. The short-a-safe strategy aims to benefit from limited downward movement in the stock price by selling a

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    49 views11 pages

    Payoff Option Strategies

    Uploaded by

    Vishal Rana
    The long call option strategy involves buying a call option to benefit from upward movement in the underlying stock's price. The maximum risk is limited to the premium paid. There is no upper limit to potential gains if the stock price rises above the break-even point of strike price plus premium. The bull call ladder strategy uses a combination of one long call and two short calls to benefit from stock price increases within a defined range. The maximum risk is unlimited but returns are limited, with the break-even point being the sum of the two short call strike prices minus the long call strike price plus net premium received. The short-a-safe strategy aims to benefit from limited downward movement in the stock price by selling a

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    of 11

    LONG CALL OPTION STRATEGY

    Date
    B116/Jan
    B123/Jan
    B130/Jan
    B106/Feb
    B113/Feb
    B120/Feb
    B126/Feb

    Tata Motors stock price

    Total Profit on exercising option


    319
    355
    342
    330
    301
    345
    320

    do not exercise
    18
    5
    exercise and recover partial premium(10)
    do not exercise
    8
    expiry -Rs18 loss(i.e premium)

    on 16th jan 2015, when the share trades at Rs. 319. You buy a call option at a premium of Rs. 18, expirin

    profit=(strike price+premium)i.e Rs337(319+18) as a brekeven point


    Accordingly, our risk is limited to the option premium of Rs. 18 (i.e. Rs. 18 is the maximum loss we can s
    Your reward is unlimited and will depend on how much the price rises above Rs.337 at the time you unw

    Tata Motors Long Call Payout


    360

    355

    350

    345

    342

    340
    330

    330

    320 319

    32

    310
    301

    300
    290
    280
    270

    It is one of the basic strategies as it involves entering into one position i.e. buying the Call Option
    investor who buys the Call Option will be bullish in nature and would be expecting the market to
    returns in the near future.
    Risk:The risk of the buyer is the amount paid by him to buy the Call Option i.e. the premium valu
    Return:The return will be unlimited as the underlying asset value can rise up to any value until th
    Break-Even Point:The break-even point for the Call Option Holder will be Strike Price + Premi

    premium of Rs. 18, expiring 26th feb 2015 with a Strike Price of Rs. 320.

    the maximum loss we can suffer on this contract).


    Rs.337 at the time you unwind your position

    345

    320

    one position i.e. buying the Call Option only. Any


    and would be expecting the market to give decent

    y the Call Option i.e. the premium value.


    et value can rise up to any value until the expiry.
    on Holder will be Strike Price + Premium'

    BULL CALL LADDER OPTION STRATEGY


    Share prices
    Net Payoff 1 ATM Call Sold
    1500

    Net Payoff 1 OTM Call Sold


    142.15

    108.95

    1550

    142.15

    108.95

    1600

    142.15

    108.95

    1650

    142.15

    108.95

    1700

    142.15

    108.95

    1750
    1800
    1850
    1900
    1950
    1961.35
    2000

    142.15
    142.15
    92.15
    42.15
    -7.85
    -19.2
    -57.85

    108.95
    108.95
    108.95
    58.95
    8.95
    -2.4
    -41.05

    BULL CALL LADDER OPTION PA


    Axis Title

    200
    150
    100
    50
    0
    -50
    -100
    -150
    -200
    -250
    -300

    Net Payoff 1 ITM Call Purchased


    -239.75

    Net Payoff
    11.35

    -239.75

    11.35

    -239.75

    11.35

    -239.75

    11.35

    -239.75

    11.35

    -189.75
    -139.75
    -89.75
    -39.75
    10.25
    21.6
    60.25

    61.35 max profit


    111.35
    111.35
    61.35
    11.35
    0 Breakeven
    -38.65

    ULL CALL LADDER OPTION PAYOFF

    10

    11

    12

    Net Payoff 1 ATM Call


    Sold
    Net Payoff 1 OTM Call
    Sold

    Long Call Ladder Option Strategy is used when the investor is moderately bullish on the stock and expec
    Risk:The maximum risk of the buyer is unlimited
    Return:The return will be limited.

    Break-Even Point: Sum of the strike prices of the two short calls strike price of the long call + net prem

    y bullish on the stock and expects less volatility

    e price of the long call + net premium received).

    1961.35

    Short-a-Safe Strategy
    it can be used when the investor is expecting fall in the stock prices in near future.
    sell 1 call option @ Rs 44 with premium Rs 3
    buy 1 put option @ Rs 44 with premium Rs 2.5

    For example: On 29thjan 2015, the share ofIndo Hotels was trading at Rs. 45, you decide to sell 1 c
    share price
    net payoff from call option sold
    25
    3
    30
    3
    32.5
    3
    35
    3
    37.5
    3
    40
    3
    42.5
    3
    44
    3
    47.5
    0.5
    50
    -2
    52
    -4

    ecting fall in the stock prices in near future.


    Profit when stock price moves above Rs 47 (44+3)
    Profit when stock price moves above Rs 42.5 (44-2.5)

    are ofIndo Hotels was trading at Rs. 45, you decide to sell 1 call option with a strike price of Rs. 44 at a premium of Rs. 3.0
    net payoff from put option purchased
    17.5
    12.5
    9
    6.5
    4
    1.5
    -1
    -2.5
    -2.5
    -2.5
    -2.5

    Net payoff
    20.5
    15.5
    12
    9.5
    7
    4.5
    2
    0.5
    -2
    -4.5
    -6.5

    moves above Rs 47 (44+3)


    moves above Rs 42.5 (44-2.5)

    f Rs. 44 at a premium of Rs. 3.00. At the same time you buy a put option with a strike price of Rs. 44.00 at a premium of Rs

    of Rs. 44.00 at a premium of Rs. 2.5.

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