Different-Kind-of-Options - time, a much larger move in the...

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FIN 480 (Faculty- SfR) Different kind of Options: Straddle The straddle is an unlimited profit, limited risk option trading strategy that is employed when the options trader believes that the price of the underlying asset will make a strong move in either direction in the near future. It can be constructed by buying an equal number of at-the- money call and put options with the same expiration date. Strangle Like the straddle, the strangle is also a strategy that has limited risk and unlimited profit potential. The difference between the two strategies is that out-of-the-money options are purchased to construct the strangle, lowering the cost to establish the position but at the same
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Unformatted text preview: time, a much larger move in the price of the underlying is required for the strategy to be profitable. Strip The strip is a modified, more bearish version of the common straddle. Construction is similar to the straddle except that the ratio of puts to calls purchased is 2 to 1. Strap The strap is a more bullish variant of the straddle. Twice the number of call options are purchased to modify the straddle into a strap. Option combination An option position where you long a call option and a put option with different expiration date. Or if you short a call and a put with different expiration dates and or different strike prices....
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This note was uploaded on 03/23/2011 for the course BUSINESS bus 173 taught by Professor Rtm during the Spring '11 term at IUP.

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