Question

Describe the following positions and under what market conditions will they have profits

Long Straddle

Long Futures

Short Put

Short Call

Answer 1

1.Long straddle- A long straddle is buying of a call as well as a put option of the same strike price of a share. It is helpful in gaining profit and loss from large movement of share either on the upside or either on the downside.

When the rise in the current market price of shares or fall in the current market price of the share from the strike price is larger than the premium paid on both the options, then the investor will gain the profits.

2. Long futures-going long on futures means building a bullish position on the share so when share will show the movement on the upside the investor will gain because he is betting on the upside of the stock because he has bought the futures.

3. Short put-it is a position which specify that investor is bullish on the stock because he has shorted the put option of a stock and he wants that share should go upside, in order to eat the premium of the put option.it is an alternative strategy of buying the call option because it represents the bullishness of trader.

4.Short call-Shorting of call option means that the trader is bearish on the prospect of the share because he has gone short on the call option which means that he wants to eat premium of the call option because he believes that the share would be unable to show any movement on the upside and the share should go the downside. This is an alternative strategy of buying a put option.