protective put, covered calls, straddle, spreads, and collars. explain how these strategies work, and provide a...

protective put, covered calls, straddle, spreads, and collars. explain how these strategies work, and provide a specific example.

Expert Solution

Protective put - When the underlying stock is held, and put options on the stock are bought. This strategy will cap the losses on the stock. For example, Stock A is owned which is currently trading at $50. Put options with strike price of $48 are bought. In this case, if the price of Stock A falls below $48, the gains on the put option will offset the loss on the stock. The selling price of the stock is locked in at $48

Covered call - When the underlying stock is held, and call options on the stock are sold. This strategy will cap the profits on the stock, but provide additional income if the stock price does not rise above the strike price. For example, Stock A is owned which is currently trading at $50. Put options with strike price of $52 are sold. In this case, if the price of Stock A stays below $52, the premium received on the call option will be income. However if the stock price rise above $52, the losses on the call option will be offset by the gains on the stock

A long straddle is when a call and put option of the same underlying, same strike price and same expiry are bought. The total premium paid is the breakeven. If the stock price at expiry is more than (strike price + premium paid), or less than (strike price - premium paid), the option position is in profit.

A short straddle is when a call and put option of the same underlying, same strike price and same expiry are sold. The total premium received is the breakeven. If the stock price at expiry is less than (strike price + premium paid), or more than (strike price - premium paid), the option position is in profit.

A spread can be a bull call spread or a bear put spread. A bull call spread is when a call option of a lower strike is bought, and a call option of a higher strike is sold. A bear put spread is when a put option of a higher strike is bought, and a put option of a lower strike is sold

An option collar strategy is when the underlying stock is owned, and a put option is bought of a lower strike, and a call option of a higher strike is sold. It is a combination of a covered call and protective put

jeff jeffy answered 5 months ago

How would you explain Call Options, Put Options, Covered Calls, Straddle, Spreads, and Collars to a...

How would you explain Call Options, Put Options, Covered Calls, Straddle, Spreads, and Collars to a friend with no background in finance?

Explain how to build an covered call and covered put, what are the purposes of a...

Explain how to build an covered call and covered put, what are the purposes of a covered call and covered put strategy? Build a real life Covered call and covered put for an American stock of your choice, pull the options contracts and paste them on the answer. Please explain each part of it, what the credit or debit will be for the transaction, include every detail of each option contract you will use to build the Covered call and...

Covered Call or Protective Put Suppose that you wish to buy stock and protect yourself against...

Covered Call or Protective Put Suppose that you wish to buy stock and protect yourself against a downside movement in its price. You consider both writing a covered call and buying a protective put. Briefly explain the differences between these two positions. What gains can you achieve from these positions? What are the costs you have to pay to have those gains? What factors would affect your decision?

1. What's put-call parity? Please explain it. 2. What's a protective put?

Explain how to build a Short Straddle, what are the purposes of a Short Straddle strategy?...

Explain how to build a Short Straddle, what are the purposes of a Short Straddle strategy? Build a real life Straddle for a stock of your choice, pull the options contracts and paste them on the answer. Please explain each part of it, what the credit or debit will be for the transaction, include every detail of each option contract you will use to build the Straddle trade.

Explain how to build an long straddle, what are the purposes of an long straddle strategy?...

Explain how to build an long straddle, what are the purposes of an long straddle strategy? Build a real life long straddle for an American stock of your choice, pull the options contracts and paste them on the answer. Please explain each part of it, what the credit or debit will be for the transaction, include every detail of each option contract you will use to build the long straddle trade.

Explain how to build an short straddle, what are the purposes of an short straddle strategy?...

Explain how to build an short straddle, what are the purposes of an short straddle strategy? Build a real life short straddle for an American stock of your choice, pull the options contracts and paste them on the answer. Please explain each part of it, what the credit or debit will be for the transaction, include every detail of each option contract you will use to build the short straddle trade.

5. Briefly define the following option strategies (2 marks each =8 marks) 5.1. Protective put 5.2....

5. Briefly define the following option strategies (2 marks each =8 marks) 5.1. Protective put 5.2. Covered call 5.3. Straddle 5.4. Spread 6. The manager of a large portfolio includes $100 million worth of long-term bonds paying an average coupon rate of 7%. The manager believes that interest rates are about to rise. Explain n how he can address his concerns using interest rates swaps. In your answer, include a clear definition of an interest rate swap (5)

how to create iron condor spread in excel? by using put, calls, and/or premium

Explain he differences between trading Naked call and puts and Covered calls and puts, why does...

Explain he differences between trading Naked call and puts and Covered calls and puts, why does this matter and what differences does it mean in margin management and risk management? Be specific and detailed.

Question