Question

Describe and compare the eight basic options strategies. American vs European Options like( at-the -money) or ( In-the-money)

Answer 1

Too often, traders jump into the options game with little or no understanding of how many options strategies are available to limit their risk and maximize return. With a little bit of effort, however, traders can learn how to take advantage of the flexibility and full power of options as a trading vehicle.

1.Married Put

Investor purchases an asset, simultaneously purchases a put option for the same number of shares. This strategy essentially functions like an insurance policy and establishes a floor should the asset’s price plunge dramatically.

2. Bull Call Spread

Investor will buy call option at a strike price and sell same number of calls at a higher strike.his type of vertical spread strategy is often used when an investor is bullish and expects a moderate rise in the price of the underlying asset.

3. Bear Put Spread

An investor has to simultaneously purchase put options at a specific strike price and sell the same number of puts at a lower strike price. This method is used when the trader is bearish and expects the underlying asset’s price to decline. It offers both limited gains and limited losses.

4. Long Straddle

In this method, the investor will purchase both calls and puts with the same strike price. This strategy allows the investor to maintain unlimited gains, while the loss is limited to the cost of both options contracts.

5. Long Strangle

he investor purchases a call and put option with the same maturity and underlying asset, but with different strike prices. Losses are limited to the costs of both options; strangles will typically be less expensive than straddles because the options are purchased out of the money

6. Butterfly Spread

combine both a bull spread strategy and a bear spread strategy, and use three different strike prices. This strategy is a net credit strategy with Delta neutral, Theta positive and Vega negative

7. Iron Condor

investor simultaneously holds a long and short position in two different strangle strategies. This strategy is a net credit strategy with Delta neutral, Theta positive and Vega negative.

8. Iron Butterfly

an investor will combine either a long or short straddle with the simultaneous purchase or sale of a strangle. Although similar to a butterfly spread, this strategy differs because it uses both calls and puts, as opposed to one or the other. Profit and loss are both limited within a specific range