FBE459_3_3_Options_Strategies

FBE459_3_3_Options_Strategies - Lecture Outline FBE 459...

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1 FBE 459 – Financial Derivatives Prof. Pedro Matos Lecture 3.3: Option Strategies Options + Underlying • Options + Underlying • Spreads, Combinations, etc • The Madoff + Nick Leeson scandals Readings: HULL chapter 10 Lecture Outline Option Strategies: 1) Take a position in the option and the underlying 2) SPREAD: Take a position in 2 or more options of the 2 same type 3) COMBINATION: Take a position in a mixture of calls & puts 1. Underlying + Options COVERED CALL : Ex: Fund analyst believes $120 is a “sell level” for A. -> proposes writing a call with K=$120, and pick up some income, although losing any profit above $120 3 S T K S T K S T K += LONG STOCK SHORT CALL COVERED CALL Scandal 1 : Covered Calls (and Collars)
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2 Scandal 1 : Covered Calls (and Collars) 1. Underlying + Options PROTECTIVE PUT : Ex: Portfolio manager wants to protect his US equity portfolio against losses. -> proposes buying an S&P500 Index put at K=S 0 6 S T K S T K S T K += LONG STOCK LONG PUT PROTECTIVE PUT 2. Option Spreads
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This note was uploaded on 04/20/2011 for the course FBE 459 taught by Professor Matos during the Spring '08 term at USC.

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FBE459_3_3_Options_Strategies - Lecture Outline FBE 459...

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