BYOG 12 INVESTOPEDIA OPTION NOTES WITH CALCULATORS
Links are to Calculators with graphics at http://www80.WolframAlpha.com
The Chicago Mercantile Exchange has supplied other material. Read disclaimer before using this table.
Abstracted by D. Gimpel at DGimpel@RoadRunner.com *
TERM
INVESTOR ACTIONS
Call, covered
Call, long
Investor owns position.
Call, Naked
Investor believes price will fall or remain flat and doesn’t own
the security.
http://www44.wolframalpha.com/input/?I=spread+option
Investor sells a Short Call and receives a premium in expectation
that the market will decline and the call not exercised.
Call, short
ADVANTAGES
Investor owns and wishes to keep
the position and wishes to
augment profits.
Requires little capital
MARKET MOVEMENT
Upside
Downside
Unlimited
Limited loss
profit
Unlimited
profit
Limited loss
Investor is bearish..
Unlimited
loss
Profited
limited.
Unlimited
profit
above
upper
strike.
Unlimited
profits
above the
long call.
Unlimited
losses.
Limited
profit below
strike price.
Call, Synthetic
Investor purchases the underlying asset, sells a bond and
purchases a Put Option. The strike price of the Put Option
equals the face value of the bond, which is the exercise price of
the synthetic call.
This is an alternative to a call
option and provides the same
payoff as a short call but costs
less.
Future, long
Investor purchases a future position.
http://www44.wolframalpha.com/input/?I=long+option
Use when bullish about the
market and uncertain about
volatility
Future, short
Investor sells a future position.
Use when bearish about the
market and uncertain about
volatility.
Long,
synthetic,
(Split-strike)
Investor purchases a Long Call above market value and sells a
Short Put below the value.
Put
Investor sells a Put Option and receives a fee. Investor owns
instrument.
Investor is bullish on the market
and uncertain about volatility.
Use as a follow up to another
strategy.
Investor is bearish on the market.
Put, naked
A put contract without an underlying instrument.
Huge profits if the underlying
asset moves in the right direction.
Profit
unlimited
above Long
Call.
Loss
limited to
fee.
Flat profit.
Unlimited
Limited to
value
invested..
Profit
limited to
initial
investment.
Loss limited
to amount
invested.
Loss limited
to
investment.
Increasing
profit with
loss
Ratio Call
Write
Investor owns shares in the underlying stock and writes more atthe-call options than the amount of the underlying shares owned.
Short,
synthetic
Investor buys a Long Put and sells a Short Call.
Spread
Investor simultaneously buys a Call and sells a Put
http://www44.wolframalpha.com/input/?I=spread+option
Short Call at lower strike, Long Call at upper.
Short Put at lower strike, Long Put at upper.
Short Call at lower strike, , Long Put at upper strike.
Short Put at lower strike, Long Call at upper.
Long Call at lower strike point, Short put at upper strike.
Long Put at lower, Short Put at upper.
Long Call at lower, Short Put at upper using a short instrument.
Long Put at lower, Short Call at upper using a long instrument.
http://www44.wolframalpha.com/input/?I=Bull+option
A Butterfly Spread combines a Bull and Bear Spread using three
strike prices with the earlier two as used in the Bull Spread and
the latest as in the Bear Spread.
http://www44.wolframalpha.com/input/?I=butterfly+option
Spread bear
Spread, Bull
Spread,
Butterfly
Spread,
Calendar or
inter-delivery
or intermarket, time
or horizontal
spread
Spread,
Condor
Spread,
Horizontal
Spread,
Option
This captures the premium
received by the option sale to
increase profit. The writer hopes
for low volatility.
Investor is bearish on the market
and uncertain about volatility.
Initiated as a follow up to another
strategy.
Generates a profit if the price
rises. Transaction cost is low.
Investor is somewhat bearish
Unlimited
decreasing
price.
Some risk if
price goes up
too much.
Limited
Unlimited
Limited
profit
Limited loss
No profit
Investor is somewhat bullish on
the market
Limited
profit
Limited loss
Use when the securities expected
price will remain within a narrow
range. May be entered
advantageously in a long-term
option sequence with at least 1month to go.
Limited
profit till
upper
strike point
then slight
loss.
Limited
profit to
lower strike
point then
slight loss.
Limited
profit
No profit
Limited
profit.
A Calendar Spread is a Horizontal Spread or a Time Spread.
This option is established by simultaneously entering a long and
short position on the same asset but with delivery within months.
http://www44.wolframalpha.com/input/?I=condor
http://www44.wolframalpha.com/input/?I=horizontal+spread
http://www44.wolframalpha.com/input/?I=spread+option
Spread,
Proportional
Spread, Ratio
Call
Spread, Ratio
Call Backspread
http://www44.wolframalpha.com/input/?I=spread+proportional
This option is one in which there are an unequal number of
options purchased and written simultaneously. When more
options are written than purchased, it is a Ratio Spread. When
more options are purchased than written, it is called a Back
Spread.
Long Call at lower strike price, Short Call at upper strike price.
Long Put at lower, Short Call at upper, long instrument
A common spread seldom more than a 1:3 ratio.
http://www44.wolframalpha.com/input/?I=ratio+spread+option
Short Call at lower strike price, Long Call at upper.
Short Put at lower, Long Call at upper, short instrument
http://www44.wolframalpha.com/input/?I=call+ratio+backspread
Spread, Ratio
Put
Short Put at upper strike price, Long Put at upper strike.
Short Put at lower, Long Call at upper with short instrument.
A common spread with a ratio seldom more than 1:3 .
http://www44.wolframalpha.com/input/?I=put+ratio+spread
Spread,
Vertical
Simultaneous purchase and sale of two options of the same type
with the same expiration date but different strike prices.
http://www44.wolframalpha.com/input/?I=vertical+spead
Long Call at market, Long Put at market.
Long Put at market, short instrument
Long Call at market, long instrument
http://www44.wolframalpha.com/input/?I=straddle+option
Long Put at lower strike point, Long Call at upper.
Long Call at lower strike point, Long Put at upper.
http://www44.wolframalpha.com/input/?I=strangle+option
Straddle
Strangle, long
Strangle, short
Short Put at lower strike point, Short Call at upper.
Short Call at lower strike point, Short Put at upper.
http://www44.wolframalpha.com/input/?I=strangle+option
Use when there is a slight
expectation of a market rise but
with a possible market sell-off.
This is a common spread with
seldom more than a 3:1 ratio.
Use when market is more likely
to go up than down and the
market is near the upper strike
price.
Use when there is a small
expectation of a market fall but a
high potential for a sharp rise.
Use if you expect market
movement but are unsure of
direction.
Use if market has been stagnant
and within two strike points and
the expected to become active.
Use if market is active and is
expected to quiet down.
Unlimited
profit.
Profit
limited to
narrow
band above
strike point
then
unlimited
loss
No profit
Loss
limited to
narrow
band then
unlimited
profit.
Profit
limited to
narrow
band below
upper
strike point
then flat.
Limited
profit
Loss limited
to lower
strike point
then flat.
Unlimited
profit
above
band.
Unlimited
profit
above
upper
strike
point.
Profit
limited to
upper
Unlimited
profit below
band.
Profit
limited to
narrow
band to
lower strike
point then
none.
Profit
limited to
narrow
band and
then limited
loss.
None
Limit profit
below lower
strike point.
Profit
limited to
lower strike
Strip
Strap (Triple
Option)
Being long in one call and two put options.
Being long in one put and two call options with the same strike
price, maturity and underlying asset.
Use when the market is expected
to rise aggressively.
strike point
then
unlimited
loss.
point then
limited loss..
Large
profits.
Large losses.
* The material in the above table was obtained from sources believed to be reliable, www44.wolframalpha.com and the Chicago Mercantile Exchange.
This table is intended for educational purposes only as a guide to the different types of option systems available. Users are urged to confirm the
accuracy of this material before use. The AAII and the authors are not responsible for any statements made.
Items to be added:
Option, collar
Spread, alligator
Spread, cat
Spread, condor
Spread, debit
Spread, front
Spread, inter-commodity
Spread, reduced
Spread, static
Spread, zero-volatility
OPTION SELECTOR TABLE
IMPORTANT INSTRUCTIONS ON THE USE OF THIS TABLE:
1. This table has been derived from material found at http://www.optiontradingpedia.com/strategy , a questionnaire from Optiontradingpedia.
2. If you are connected to the internet and click on the underlined option type name in the right hand column, you will be transferred to the
WolframAlpha calculator site. Once there, click on the button at the right of the name box to bring up the calculator. If the Option Type is not
underlined, then no suitable calculator has been identified.
3. The shaded table area indicates that no answer is required and skip to the next question or the option type column.
1. Market 2. Trend
3. Own
4. The Broker 5. Protect 6. Broker allows 7. Trading
Direction? Duration? Shares?
Allows
Yes/No Write/Sell
Status
Up
Sustained
Yes
Up
Sustained
No
Credit Spreads
Yes
Up
Sustained
Yes
Up
Sustained
No
Credit Spreads
No
The best choice for the option type is:
Up
Up
Up
Up
Up
Sustained
Sustained
Slight Rise
Slight Rise
Slight Rise
No
No
Yes
No
No
Calendar Call Spread
Long Call Option
Covered Call
Bull Call Spread
Ratio Call Spread
Up
Up
Up
Down
Down
Slight Rise
Slight Rise
Slight Rise
Slight Drop
Sustained
Ditch
Sustained
Ditch
Sustained
Ditch
Sustained
ditch
Sustained
Ditch
Sustained
Ditch
Sustained
Ditch
No
No
No
Yes
No
Down
Down
down
Down
Down
Down
Yes
No
Credit Spread
Yes
Credit Spreads
Credit Spreads
Credit Spreads
Yes
No
Yes
Credit Spreads
Yes
Bull Put Spread
Naked Put Write, Sell Naked Put Options
Ratio Bull Spread
Covered Put
Short Bear Ratio Spread
Yes
Calendar Put Spread
no
Naked Call
Option
No
Yes
Naked call
Covered Call
Short Bull Ratio Spread
Covered Call
Long Call option
No
Credit Spreads
Yes
Short Bear Ratio Spread
no
Credit spreads
Yes
Calendar put spread
No
No
Long Put Option
No
Yes
Calendar Put Spread
No
No
Long Put Option
Down
Down
Stagnant
Slight Drop
Slight Drop
Write/Sell
naked Calls/Puts
Write/Sell
naked Calls/Puts
Write/Sell
naked Calls/Puts
Write/Sell
naked Calls/Puts
Write/Sell
naked Calls/Puts
Write/Sell
naked Calls/Puts
Write/Sell
naked Calls/Puts
Write/Sell
naked Calls/Puts
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Write/Sell
naked Calls/Puts
Write/Sell
naked Calls/Puts
Stagnant
Stagnant
Stagnant
Stagnant
Stagnant
Up/Down
Up/Down
Up/Down
Up/Down
Up/Down
Up/Down
Yes
No
Credit Spreads
Stay Stagnant
Yes
Credit Spreads
Iron Condor Spread
Yes
Credit Spreads
Trade in narrow
range
Stay stagnant
Yes
Credit Spreads
Trade in narrow
range
Iron Condor Spread
Butterfly Spread
No
Condor Spread
No
No
N
Y
N
N
No
No
Butterfly Spread
Credit Spreads
Credit Spread
Credit Spreads
Credit Spreads
Credit Spreads
Credit Spreads
Credit Spreads
Credit Spreads
Credit Spread
Credit Spread
Credit Spread
No
No
Drastically
Drastically
Slightly
Slightly
Slightly
Slightly
Covered Put
Bear Put Spread
Iron Butterfly Spread
Credit Spread
Credit Spread
Price within $1 of
any strike price
Price not within $1
of any strike price
$1 of strike price
Stagnant
Narrow Range
Stagnant
Narrow Range
Stagnant
Narrow Range
Price within $1 of
any strike price
Not within $1 of
any strike price
Stagnant
Narrow range
Stagnant
Narrow range
More than $1
Less than $1
Yes
No
Yes
No
Short Straddle
Short Strangle
Short Strangle
Iron Butterfly Spread
Iron Condor Spread
Butterfly Spread
Condor Spread
Butterfly Spread
Condor Spread
Short straddle
Short strangle
Iron Butterfly
Iron Condor
Butterfly
Condor
Long Straddle
Long Strangle
Short Condor
Short Butterfly
Reverse Iron Condor
Reverse Iron Butterfly