directional strategies in derivative
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TRANSCRIPT
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DIRECTIONAL STRATEGIES
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Long Call
Investor View
Bullish on stock / index
Risk Limited to the amount of premium
Reward Unlimited
Breakeven Strike price + Premium
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Short Call
Investor View
Very aggressive and very bearish about the stock / index
Risk Unlimited
Reward Limited to the amount of premium
Breakeven Strike price + Premium
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Long Put
Investor View
Bearish about the stock / index
Risk Limited to the amount of premium
Reward Unlimited
Breakeven Strike price - Premium
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Short Put
Investor View
Bullish on stock / index
Risk Unlimited
Reward Limited to the amount of premium received
Breakeven Put Strike price - Premium
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Strategy Stock / Index Type Strike Premium Inflow
Short Put NIFTY (Lot Size 50)
Sell PUT 5500 50
Illustration
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Bull Call Spread Strategy
Investor View
Moderately Bullish
Strategy Buy 1 ITM Call , Sell 1 OTM Call
Risk Limited to any initial premium paid in establishing the position
Reward Limited to the difference between the two strikes minus net premium cost
Breakeven Strike Price of Purchased call + Net Premium Paid
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Illustration
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Payoff Schedule
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Bear Put Spread Strategy
Investor View
Moderately Bearish
Strategy Buy 1 ITM Put , Sell 1 OTM Put
Risk Limited to the net amount paid for the spread. i.e. the premium paid for long position less premium received for
short position
Reward Limited to the difference between the two strike prices minus the net premium paid for the position
Breakeven Strike Price of Long Put - Net Premium Paid
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Illustration
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Payoff Schedule
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Long Call / Bull Call Ladder Strategy
Investor View
Neutral on direction & bearish on stock / index volatility
Strategy Buy 1 ATM Call , Sell 1 ATM Call , Sell 1 OTM Call
Risk Unlimited
Reward Limited
Breakeven Upper BEP: Higher strike – Lower strike – Net debit
Lower BEP: Lower strike + Net debit
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Illustration
Strategy Stock / Index Type Strike Premium
Long Call Ladder
NIFTY (Lot Size 50)
Buy CALL 5400 200
(Outflow)
Sell CALL 5500 130
(Inflow)
Sell CALL 5600 80
(Inflow)
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Payoff Schedule Payoff Chart
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Long Put / Bear Put Ladder Strategy
Investor View
Neutral on direction & bearish on stock / index volatility
Strategy Buy 1 ITM Put , Sell 1 ATM Put , Sell 1 OTM Put
Risk Unlimited
Reward Limited
Breakeven Upper BEP: Strike price of long put – Net premium paid
Lower BEP: Total strike prices of short puts – Strike price
of long put + Net premium paid
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Illustration
Strategy Stock / Index Type Strike Premium
Long Put Ladder
NIFTY (Lot Size 50)
Sell PUT 5400 60
(Inflow)
Sell PUT 5500 100
(Inflow)
Buy PUT 5600 140
(Outflow)
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Payoff Schedule Payoff Chart
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Short Call / Bear Call Ladder Strategy
Investor View
Neutral on direction & bullish on stock / index volatility
Strategy Sell 1 ITM Call , Buy 1 ATM Call , Buy 1 OTM Call
Risk Limited
Reward Unlimited
Breakeven Upper BEP: Higher strike + Maximum Risk
Lower BEP: Lower strike + Net debit (or Net Credit)
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Illustration
Strategy Stock / Index Type Strike Premium
Short Call Ladder
NIFTY (Lot Size 50)
Sell CALL 5400 200
(Inflow)
Buy CALL 5500 130
(Outflow)
Buy CALL 5600 80
(Outflow)
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Payoff Schedule Payoff Chart
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Short Put / Bull Put Ladder Strategy
Investor View
Neutral on direction & bullish on stock / index volatility
Strategy Sell 1 ITM Put , Buy 1 ATM Put , Buy 1 OTM Put
Risk Limited
Reward Unlimited
Breakeven Upper BEP: Higher strike + Net Debit (OR) – Net Credit
Lower BEP: Lower strike – Maximum Risk
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Strategy Stock / Index Type Strike Premium
Short Put Ladder
NIFTY (Lot Size 50)
Buy PUT 5400 60
(Outflow)
Buy PUT 5500 100
(Outflow)
Sell PUT 5600 140
(Inflow)
Illustration
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Payoff Schedule Payoff Chart
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Ratio Call Spread
Investor View
Bearish Market Opinion
Strategy But 1 ITM Call , Sell 2 OTM Calls
Risk Unlimited
Reward Limited
Breakeven Upper BEP: Strike price of short call + (Points of max
profit / No. of uncovered calls)
Lower BEP: Strike price of Long call +/- Net Premium
paid or received
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Ratio Put Spread
Investor View
Neutral to Bullish
Strategy But 1 ITM Put , Sell 2 OTM Puts
Risk Unlimited
Reward Limited
Breakeven Upper BEP: Strike price of long put +/- Net Premium
paid or received
Lower BEP: Strike price of Short Puts - (Points of max
profit / No. of uncovered calls)
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