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  • Bear Spread - Stock Option Investment Strategy

    Hochgeladen von

    Sushil Mundel
    14 Ansichten3 Seiten
    The "bear spread" is an options trading strategy that can be used when an investor believes the market is in a bear cycle but nearing a neutral or bull market. It involves buying an option with a higher strike price while also writing (selling) an option with a lower strike price, resulting in either a net credit or debit. Profits are limited to the difference between the strike prices, while losses are limited to the net credit or debit. The strategy aims to profit if the stock price remains between the two strike prices.

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    BEAR SPREAD

    Originaltitel

    _Bear Spread_ Stock Option Investment Strategy

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    The "bear spread" is an options trading strategy that can be used when an investor believes the market is in a bear cycle but nearing a neutral or bull market. It involves buying an option with a higher strike price while also writing (selling) an option with a lower strike price, resulting in either a net credit or debit. Profits are limited to the difference between the strike prices, while losses are limited to the net credit or debit. The strategy aims to profit if the stock price remains between the two strike prices.

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    © All Rights Reserved
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    Markieren Sie unangemessene Inhalte
    14 Ansichten3 Seiten

    Bear Spread - Stock Option Investment Strategy

    Hochgeladen von

    Sushil Mundel
    The "bear spread" is an options trading strategy that can be used when an investor believes the market is in a bear cycle but nearing a neutral or bull market. It involves buying an option with a higher strike price while also writing (selling) an option with a lower strike price, resulting in either a net credit or debit. Profits are limited to the difference between the strike prices, while losses are limited to the net credit or debit. The strategy aims to profit if the stock price remains between the two strike prices.

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    © All Rights Reserved
    Als PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 3

    3/4/2015

    "BearSpread"StockOptionInvestmentStrategy

    BearSpreadStockOptionInvestmentStrategy
    By:InvestorGuideStaff,datedJanuary25th,2013
    1

    Stockoptionsarecontractsthatgiveholderstheright(butnottheobligation)tobuyorsell100sharesofstockatasetpricebytheexpirationdateofthe
    contract.Whentheholderexercisesacalloption,theyareobligatingtheoriginalwriter(seller)tosell100sharesofstockatthestrikeprice.Acall
    optionispurchasedbyaninvestorwhobelievesthatthepriceoftheunderlyingstockwillrisebeforetheexpirationdatetoatleastthelistedstrike
    price.Aputoption,ontheotherhand,ispurchasedbyaninvestorwhothinksthattheunderlyingpriceofstockwilldropbeforetheexpirationdate.
    Therefore,theholderofaputoptioncansellthe100sharesofstockanearlier,higherprice,shouldthepricedropasanticipated.Theparticularstock
    optionstrategyyouuse(forbothcallandputoptions)willdependontheoveralltrendofthemarket.
    Bearmarketsaremostcommonduringrecessions.But,likeallphasesoftheeconomiccycle,thereisalwaysaperiodoftransition.Forinstance,an
    investormaybelievethemarkettostillbeinabearcycle(andexpectoveralldownwardpressureonstockprices),butalsobelievethatthingsare
    improvingtothepointthatpriceswilleitherceasefallingoratleastfallatlowerrates.Forinvestorswhothinkthemarketisstillinabearcycle,but
    closetoemergingintoaneutral,orevenbullmarket,abearspreadstockoptioninvestmentstrategymaybethebest.

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    3/4/2015

    "BearSpread"StockOptionInvestmentStrategy

    Thebearspreadstrategycanbeusedforbothcallandputoptions.Forthosewithcalloptions,theideaistobuyanoption(withastrikeprice1)while
    alsowritinganoptionthathasalowerstrikeprice
    (strikeprice2)withtheresultbeinganetcredit.But,forthoseinvestorswithputoptionswhomaywanttobuyaputoptionatahigherstrikepricewhile
    alsosellingaputoptionatalowerstrikeprice,theresultisanetdebit.
    Bothpotentialprofitsandlossesarelimitedusingthebearspreadstockoptioninvestmentstrategy.Themaximumprofitlevelisattainedinthisstrategy
    whenthefinalstockpriceisat,orbelow,strikeprice2fortheoptionthatwassold,beitaputorcalloption.Forthoseinvestorswithcalloptions,this
    maximumprofitlevelwillbethenetinitialcredit.Ifyouwereusingputoptions,thistotalprofitislimitedtothedifferencebetweenstrikeprices,minusthe
    initialdebit.
    Themaximumlossofthebearspreadstrategyisreachedwhenthestockrestsatorabovethestrikeprice1duringthetimeofexpiration.Forthosewith
    calloptions,thismaximumlosswillbeequaltothedifferencebetweenstrikeprice1andstrikeprice2,minustheinitialcredit.Forthosewithputoptions,
    maximumlossisequaltotheinitialdebit.

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