Option trading strategies – Understanding spread positions

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Spread positions are a portfolio of purchased (long) and/or selling (short) options. Generally, a distinction is made between price spreads and time spreads.

Price spreads

The price spread option positions are distinguished on the basis of combinations of options (purchase and sale ) from the same or from different option classes.

Price spread positions in the same class

Both the bull spread and the bear spread can be created with call options and put options.

Bull Spread

A bull spread consists of buying a call option and the simultaneous sale of a call option. The exercise data of the two options are the same, but the long position has a lower exercise price than the short position. The put-call parity can be formed by both a bull spread with calls as well as puts.

Bear spread

A bear spread (also: bearish spread) consists of buying a call option (long call) and the simultaneous sale of a call option (short call) .

The exercise data of the two options are the same, but the short-position has a lower exercise price than the long position. The put-call parity can be formed both a bear spread with calls as well as puts.

Price spread positions of different classes

The price – spread positions are options positions from different class options (call and put).

Straddle

For the straddle is speculated to greatly varying rates (long straddle ) and the rates stay the same (short straddle). The short straddle involves a risk of unlimited loss.

Long Straddle : (also called bottom straddle) : For a long straddle is simultaneously a call and a put with the same underlying asset, bought at the same strike price and the same expiration date.

The market expectation of the investor is therefore volatile, ie the investor expects substantial price changes in the underlying. The profit potential is theoretically unlimited. The potential loss is limited to the paid option prices.

Short Straddle : This is the inverse of the long straddle position, ie the sale of a call and a put on the same underlying asset, at the same strike price and the same expiration date.

The investor expects a stagnant level of the underlying asset, ie the investor does not expect any major price changes in the underlying. The profit potential is composed of the double option premium received.

The potential loss is sharply rising prices for the underlying theoretically unlimited, limited in heavily falling prices of the exercise price.

Covered straddle: Underlying combination of long and short a put .
Naked straddle:: Opening the position without cover (without underlying).

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