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Options and Futures

Summary Product Specifications Chart for


Cboe Bitcoin (USD) Futures
• Contract Name:
Cboe Bitcoin (USD) Futures
• Listing Date:
December 10, 2017

• Description:
Cboe Bitcoin (USD) futures are cash-settled futures contracts that are based on the Gemini
auction price for bitcoin in U.S. dollars.
• Contract Multiplier:
The contract multiplier for the XBT futures contract is 1 bitcoin.
• Ticker Symbol:
Futures Symbol - XBT
Final Settlement Value Symbol – XBTS
• Contract Expirations:
The Exchange may list for trading up to four near-term expiration weeks ("weekly"
contracts), three near-term serial months ("serial" contracts), and three months on the
March quarterly cycle ("quarterly" contracts).
Understanding the operations of margin
• You have gone long on five contracts of bitcoin futures at $18550 on
12th December
• Initial Margin: 44%
• Maintenance Margin: 40%
Operations of Margin for five contracts in
bitcoin futures on CBOE
contracts 5 Initial Margin 44% M. Margin 40%
Contract
Size 92750 40810 16324

Date Price Value P/L Margin Account Margin call


12th Dec 18020 90100 -2650 38160
13th Dec 17055 85275 -4825 33335
14th Dec 16800 84000 -1275 32060
15th Dec 18105 90525 6525 38585
17th Dec 19550 97750 7225 45810
18th Dec 19055 95275 -2475 43335
19th Dec 17555 87775 -7500 35835
20th Dec 16700 83500 -4275 31560
21st Dec 15290 76450 -7050 24510
22nd Dec 13960 69800 -6650 17860
25th Dec 13790 68950 -850 17010
26th Dec 15810 79050 10100 27110
27th Dec 14945 74725 -4325 22785
28th Dec 13755 68775 -5950 16835
29th Dec 14550 72750 3975 20810
Options Trading Strategies
Combination of various option positions along with underlying
positions:
• According to your investment goal
• And your view on the stock
With the aim to either hedge or speculate
Assumptions:
• The underlying asset is a stock
• Other underlying assets can apply to similar results
• The options used in the strategies are European
• American option may probably be exercised early that leading to
different profit outcome
• Ignore the time value of money

7
Types of Strategies
• Hedge
• Holding single option on a stock and the stock
itself
• Spread
• Taking a position in two (or more) options of
the same type.
• Combination
• Taking a position in both calls and puts on the
same stock
8
Hedge strategy
• Covered call

• Protective put

Holding single option on a stock and the stock itself

9
Covered call: long on stock & short on call
• Eg. You own shares of XYZ company. The current price of the stock is
Rs. 900 and you take a short position (or sell) in a call option at a
strike price of Rs.1000 for a premium of Rs. 50.
• Calculate the payoff
Payoff table for covered call
Long Stock Short Call
S0 900 K 1000
C 50

ST P/L from stock P/L from call Premium Net P/L


750 -150 0 50 -100
800 -100 0 50 -50
850 -50 0 50 0
900 0 0 50 50
950 50 0 50 100
1000 100 0 50 150
1050 150 -50 50 150
1100 200 -100 50 150
1150 250 -150 50 150
1200 300 -200 50 150
Payoff Chart for Covered Call Option Strategy
Covered Call
350
300
250
200
150
100
50
0
-50 750 800 850 900 950 1000 1050 1100 1150 1200
-100
-150
-200
P/L from stock Net P/L from Call Net P/L
• Investment Goal: Earn some income on an existing stock.
• View on the Stock:
• Long term: likely to rise
• Short term: neutral to slightly bullish
Protective Put: long on stock & Long on Put
• Eg. You own shares of XYZ company. The current price of the stock is
Rs. 900 and you take a long position (or buy) in a put option at a strike
price of Rs.950 for a premium of Rs. 100.
• Calculate the payoff
Pay off table for Protective Put
Long Stock Long Put
S0 900 K 950
C 100

Net P/L from


ST P/L from stock P/L from put Premium Put Net P/L
750 -150 200 -100 100 -50
800 -100 150 -100 50 -50
850 -50 100 -100 0 -50
900 0 50 -100 -50 -50
950 50 0 -100 -100 -50
1000 100 0 -100 -100 0
1050 150 0 -100 -100 50
1100 200 0 -100 -100 100
1150 250 0 -100 -100 150
1200 300 0 -100 -100 200
Pay off Chart for Protective Put
Protective Put
350
300
250
200
150
100
50
0
-50 750 800 850 900 950 1000 1050 1100 1150 1200

-100
-150
-200
P/L from stock Net P/L from Put Net P/L
• Investment Goal: You are holding a stock for medium term to long
term but want to protect yourself from a near term loss.
• View on the stock: Conservatively Bullish
Reliance industries 1-month stock price data
Spread trading strategy
• Bull Spreads
• Bear Spreads
• Box Spread
• Butterfly Spreads
• Calendar Spreads
• Diagonal Spreads

taking a position in two (or more) options of the same


type (i.e., two calls or two puts)
19
Bull Spread
• Long Call at strike price K1
• Short Call at strike price K2

• K1<K2
• Eg. Suppose u buy a call option for stocks of company XYZ for strike
price of Rs. 30 for Rs. 3 and simultaneously sell a call option for strike
price of Rs. 35 for Rs.1 of the same underlying.
Payoff Table for a Bull Spread

Premium Net P/L Premium Net P/L


P/L for long on long from long P/L for on Short from Net from
ST Call call Call Short Call call Short Call strategy
15 0 -3 -3 0 1 1 -2
20 0 -3 -3 0 1 1 -2
25 0 -3 -3 0 1 1 -2
30 0 -3 -3 0 1 1 -2
35 5 -3 2 0 1 1 3
40 10 -3 7 -5 1 -4 3
45 15 -3 12 -10 1 -9 3
50 20 -3 17 -15 1 -14 3
Bull Spread
Bull Spread
20

15

10

0
15 20 25 30 35 40 45 50
-5

-10

-15

-20
Net P/L from long Call Net P/L from Short Call Net from strategy
• Investment Goal: Bring down the cost and break-even on a long
position for call
• View on the Stock: Moderately Bullish to Bullish
Bear Spread
• Long Put at strike price K1
• Short Put at strike price K2

• K1>K2
• Eg. Suppose u buy a put option for stocks of company XYZ for strike
price of Rs. 35 for Rs. 3 and simultaneously sell a call option for strike
price of Rs. 30 for Rs.1 of the same underlying.
Payoff Table for Bear Spread

Premium Net P/L Premium Net P/L


P/L for on long from long P/L for on Short from Net from
ST long Put put Put Short Put Put Short Put strategy
15 20 -3 17 -15 1 -14 3
20 15 -3 12 -10 1 -9 3
25 10 -3 7 -5 1 -4 3
30 5 -3 2 0 1 1 3
35 0 -3 -3 0 1 1 -2
40 0 -3 -3 0 1 1 -2
45 0 -3 -3 0 1 1 -2
50 0 -3 -3 0 1 1 -2
Bear Spread
20

15

10

0
15 20 25 30 35 40 45 50
-5

-10

-15

-20
• Investment Goal: Bring down the cost and raise the break-even on a
long position for put
• View on the Stock: Moderately Bearish
Combination Strategy: Straddle
• Long on Call at the same time long on put
• Both the options with the same strike price and expiration date
• Eg. Suppose you buy a call option and a put option for the shares of
company ABC. Both with strike price of Rs. 70 at Rs. 10 and 3
respectively.
Payoff table for straddle
Premium Net P/L Premium Net P/L
P/L for on long from P/L for on long from Net from
ST long Put put long Put long call call long call strategy
30 40 -3 37 0 -10 -10 27
40 30 -3 27 0 -10 -10 17
50 20 -3 17 0 -10 -10 7
60 10 -3 7 0 -10 -10 -3
70 0 -3 -3 0 -10 -10 -13
80 0 -3 -3 10 -10 0 -3
90 0 -3 -3 20 -10 10 7
100 0 -3 -3 30 -10 20 17
110 0 -3 -3 40 -10 30 27
120 0 -3 -3 50 -10 40 37
Straddle
Straddle
50

40

30

20

10

0
30 40 50 60 70 80 90 100 110 120
-10

-20
Net P/L from long call Net from strategy Net P/L from long Put
• Investment Goal: To gain
• Stock View: High Volatility
Thank You!!!