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Lecture 7 and 12 Notes
10 Pages • Partial Study Notes • Year: Pre-2018
Lecture 7 – Trading Strategies Involving Options Trading Strategies Involving Options: • How options can be used for hedging a pre-existing position in the spot market, and for speculating on subsequent spot movements. • Hedging o Fiduciary call writing o Covered call writing o Protective put buying • Synthetic futures contracts • Speculating o Spreads o Straddles o Other • Fiduciary call writing o Writing call options against an asset already held o Involves frequent rebalancing to maintain a hedged position • Covered call writing o Hedger simply writes one call option for each unit of asset held • Synthetic puts o Created by one call option for each unit of an asset sold short • Protective put buying o Purchase of put options to insure a long asset position • Synthetic call o The combination of a short asset and a written put Creating Synthetic Futures Contracts: • Options can be combined to create synthetic
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