Topic_14_E2 - Topic 14 Exercise 2 Stock Options Combining...

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Topic 14 Exercise 2 Stock Options Combining Options The world of options is characterized by flexibility. The most basic positions are straightforward of buying a call if you think the price of the stock will increase or buying a put if you think that the price of the stock will decrease. Some of the power of options is related to combining option positions to tailor specific return patterns. The particular combinations that you may want to put together depend on your expectations of market movement and volatility of prices over an expected holding period. Many of the strategies involve the purchase of one option with the sale of another option for the same stock. The long position refers to owning the stock or purchase of the option. The short position refers to the sale of the option. The Chicago Board Options Exchange (CBOE) publishes a weekly strategy discussion that shows how options could be used with various expectations to tailor returns from investments. The two strategies that are shown below can be found on CBOE Website. After reviewing the strategies for a “collar”
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This note was uploaded on 10/28/2009 for the course MBA MBA608 taught by Professor Martin during the Spring '09 term at Beirut Arab University.

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Topic_14_E2 - Topic 14 Exercise 2 Stock Options Combining...

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