Investment managers and investors utilize swaps, forwards, futures, and volatility derivatives in various ways, including hedging, directional bets, creating desired payoffs, asset allocation, portfolio rebalancing, and gauging current market expectations. The following table shows that investors and portfolio managers commonly…

Options offer investors a wide range of flexibility to manage their portfolio’s risk and return characteristics. They can be utilized to achieve specific objectives within an investment portfolio. Here are some typical applications of options strategies: Long Calls in a…

Setting Market Expectations – Direction Vs. Greeks Determining market expectations and selecting the appropriate options strategy is crucial for success. Different strategies focus on different factors. Some strategies rely on the directional movement of the underlying stock, such as bear…

To understand volatility skews and smiles, candidates must first grasp the concept of implied volatility and its limitations. Implied Volatility Implied volatility can be described as the outlook of a derivative contract’s expected standard deviation of returns. It is the…

Calendar spreads involve buying and selling options simultaneously. They are used to express a view on volatility or price direction within a specific timeframe. Long Calendar Spread An investor is bullish on CBA stock. They want to use call options…

 Until this point in the curriculum, the strategies we discussed involved combinations of options and stock positions. However, the following strategies can be created using just two option positions. While spreads and straddles are often standalone strategies without the…

 Options strategies are, by nature, highly flexible and customizable. They can be combined based on market expectations, attitudes, desires, and existing portfolio setups. While the strategies and combinations discussed have common goals, objectives, and setups, it’s important to remember…

Investors frequently seek to modify their investment positions for various reasons, such as securing profits, generating income, or taking advantage of potential stock price declines. As time progresses, investment strategies tend to become more dynamic. Monitoring overall risk exposure can…

Introduction to and Objectives of the Protective Put A protective put strategy combines a long stock position with a put option, representing the first half of put-call parity. This combination is sometimes referred to as a married put. The name…

Introduction to and Objectives of the Covered Call A covered call strategy has two components: long and short stock positions. The term “covered” signifies that the short call is backed or “covered” by the underlying stock an investor holds. If…