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UNIT 9: Options - Coggle Diagram

- - - - For covered call and protective put setups, the stock leg provides direction (Bullish or Bearish)
      - but the option leg sets the cap or floor,
      - and the breakeven always ties back to the stock price ± the premium received or paid.
- - - - Cash Settled = to IV :check:
      - Closing index value, exercice settlement = T+1 :check:
- - - - Covered (conservative ): Main Goal: Used to create income and increase return.
      - Naked/ Uncovered call writers: Unlimited Loss :forbidden:
      - BEARISH
      - Prohibited form writing calls: Corp against its stocks :check:
    - - 2 reasons
        
        Hedging / Protecting: When short a stock, protect that position by buying a call.
        
        Speculating: Commit a small amount of money instead of a large one.
      - Highest potential gain in a Bull market :check:
  - - - Main reason
        
        Protection a long stock
        
        Speculation: Betting the stock will go down, When the stock goes down in value, the put increases in value
      - More common than a short put
    - - Speculate
      - Create income
      - protected by a long put :check:
  - - - Shows how many people are buying puts vs calls/ Indicates market sentiment / Questions may mention “put/call ratio is shifting.”
- - - - Max gain = what you receive for it / Max loss = what you paid for it
      - Potential loss is unlimited in theory
    - - Potential gain is unlimited in theory
- - - - Price or Vertical Spread
      - calendar Diagonal Spread or Horizontal Spread
        
        Used when you expect the stock to move sideways then you keep the difference (profit) / Buy the near-term option and sell the far-term option /
    - - Bear spread: Buy the higher strike price -> Spread Narrows
      - Bull Spread: Lower strike price -> Spread Widens
      - It does not matter whether it is a call spread or a put spread
    - - Conservative strategy — already know max gain and max loss / Same options, different actions (call/call or put/put) / Everything is limited on a spread
      - Spread = the difference between the two strike prices
    - - Debit Spread
        
        Max Gain = Difference in Strike Prices − Net Debit Paid
      - Determine debit or credit without Pr :check:
  - - - Contains a naked call → very risky or very profitable
      - Volatility: Buy straddles/ Stability: Sell straddles
      - calculate closing transaction P/L :check:
    - - different strike or month (same formulas as spread just 2 BEs)
    - - When you own a stock and set one option strike above the stock price and one option below the stock price / Purpose: if you own a stock Protect from losing too much but also restrict large profits /