Question

Assume that today is Feb 1, 2020 and you have been given C$ 5,000,000 fake money to trade till 20th April, 2020. In addition, you will be expected to apply your knowledge and wisdom in the investment world. Assume that you have C$ 5,000,000 fake money with access to all listed stocks, bonds, futures and options worldwide. You can trade in options and futures, in combination with the underlying asset. The objective of this exercise is to get familiar with different contracts offered by major exchanges. During this period, you will use fake money to perform the following trades and execute at least 12 strategies (more the better as long as it fits your portfolio strategy):

1) speculative trade

2) Hedging trade

3) different type of option trading strategies

Answer 1

Types of option trading strategies.

1. Covered call
With calls, one strategy is simply to buy a naked call option. You can also structure a basic covered call or buy-write.
2. Married put
In a married put strategy, an investor purchases an asset (in this example, shares of stock), and simultaneously purchases put options for an equivalent number of shares.
3. Bull Call Spread

In a bull call spread strategy, an investor will simultaneously buy calls at a specific strike price and sell the same number of calls at a higher strike price

4. Bear Put Spread

The bear put spread strategy is another form of vertical spread. In this strategy, the investor will simultaneously purchase put options at a specific strike price and sell the same number of puts at a lower strike price.

5. Protective Collar

A protective collar strategy is performed by purchasing an out-of-the-money put option and simultaneously writing an out-of-the-money call option for the same underlying asset and expiration.

6. Long Straddle

A long straddle options strategy is when an investor simultaneously purchases a call and put option on the same underlying asset, with the same strike price and expiration date

7. Long Call Butterfly Spread

All of the strategies up to this point have required a combination of two different positions or contracts. In a long butterfly spread using call options, an investor will combine both a bull spread strategy and a bear spread strategy, and use three different strike prices.

8. Iron Condor

An even more interesting strategy is the iron condor. In this strategy, the investor simultaneously holds a bull put spread and a bear call spread. The iron condor is constructed by selling one out-of-the-money put and buying one out-of-the-money put of a lower strike (bull put spread), and selling one out-of-the-money call and buying one out-of-the-money call of a higher strike (bear call spread).

9. Iron Butterfly

The final options strategy we will demonstrate is the iron butterfly. In this strategy, an investor will sell an at-the-money put and buy an out-of-the-money put, while also selling an at-the-money call and buying an out-of-the-money call

10. FRONT SPREAD W/CALLS

Buying the call gives you the right to buy stock at strike price A. Selling the two calls gives you the obligation to sell stock at strike price B if the options are assigned

11. FRONT SPREAD W/PUTS

Buying the put gives you the right to sell stock at strike price B. Selling the two puts gives you the obligation to buy stock at strike price A if the options are assigned.

12. Double Diagonal

At the outset of this strategy, you’re simultaneously running a diagonal call spread and a diagonal put spread. Both of those strategies are time-decay plays. You’re taking advantage of the fact that the time value of the front-month options decay at a more accelerated rate than the back-month options