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    CH 12 Hull OFOD9 TH Edition

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    seanwu95
    coursematerials John Hull Slides_pptx_ OFOD9e

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    CH 12 Hull OFOD9 TH Edition

    Uploaded by

    seanwu95
    174 views18 pages
    coursematerials John Hull Slides_pptx_ OFOD9e

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    Ch12HullOFOD9thEdition

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    coursematerials John Hull Slides_pptx_ OFOD9e

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    Download as pptx, pdf, or txt
    174 views18 pages

    CH 12 Hull OFOD9 TH Edition

    Uploaded by

    seanwu95
    coursematerials John Hull Slides_pptx_ OFOD9e

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 18
    At a glance
    Powered by AI
    The chapter discusses various option trading strategies like spreads, butterflies, calendars, and combinations. It also covers principal protected notes and how option payoffs can create different patterns.

    Spreads (bull, bear), butterflies, calendars, straddles, strips/straps, and strangles are some common option trading strategies discussed.

    The viability of principal protected notes depends on the level of dividends, interest rates, and the volatility of the underlying portfolio.

    Chapter 12

    Trading Strategies I nvolving


    Options
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014 1
    Strategies to be Considered

    Bond plus option to create principal
    protected note
    Stock plus option
    Two or more options of the same type (a
    spread)
    Two or more options of different types (a
    combination)
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    2
    Principal Protected Note
    Allows investor to take a risky position without
    risking any principal
    Example: $1000 instrument consisting of
    3-year zero-coupon bond with principal of $1000
    3-year at-the-money call option on a stock
    portfolio currently worth $1000
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    3
    Principal Protected Notes continued
    Viability depends on
    Level of dividends
    Level of interest rates
    Volatility of the portfolio
    Variations on standard product
    Out of the money strike price
    Caps on investor return
    Knock outs, averaging features, etc


    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    4
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Positions in an Option & the Underlying
    (Figure 12.1, page 257)

    Profit
    S
    T
    K
    Profit
    S
    T
    K
    Profit
    S
    T
    K
    Profit
    S
    T
    K
    (a)
    (b)
    (c) (d)
    5
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Bull Spread Using Calls
    (Figure 12.2, page 258)

    K
    1
    K
    2
    Profit
    S
    T
    6
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Bull Spread Using Puts
    Figure 12.3, page 259
    K
    1
    K
    2
    Profit
    S
    T
    7
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Bear Spread Using Puts
    Figure 12.4, page 260
    K
    1
    K
    2
    Profit
    S
    T
    8
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Bear Spread Using Calls
    Figure 12.5, page 261
    K
    1
    K
    2
    Profit
    S
    T
    9
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Box Spread
    A combination of a bull call spread and a bear
    put spread
    If all options are European a box spread is
    worth the present value of the difference
    between the strike prices
    If they are American this is not necessarily so
    (see Business Snapshot 11.1)

    10
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Butterfly Spread Using Calls
    Figure 12.6, page 262
    K
    1
    K
    3
    Profit
    S
    T
    K
    2
    11
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Butterfly Spread Using Puts
    Figure 12.7, page 264
    K
    1
    K
    3
    Profit
    S
    T
    K
    2
    12
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Calendar Spread Using Calls
    Figure 12.8, page 265
    Profit
    S
    T
    K
    13
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Calendar Spread Using Puts
    Figure 12.9, page 266
    Profit
    S
    T
    K
    14
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    A Straddle Combination
    Figure 12.10, page 267
    Profit
    S
    T
    K
    15
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    Strip & Strap
    Figure 12.11, page 268

    Profit
    K S
    T
    Profit
    K S
    T
    Strip Strap
    16
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    A Strangle Combination
    Figure 12.12, page 269
    K
    1
    K
    2
    Profit
    S
    T
    17
    Other Payoff Patterns
    When the strike prices are close together a
    butterfly spread provides a payoff consisting
    of a small spike
    If options with all strike prices were available
    any payoff pattern could (at least
    approximately) be created by combining the
    spikes obtained from different butterfly
    spreads
    Options, Futures, and Other Derivatives, 9th Edition,
    Copyright John C. Hull 2014
    18

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