Mastering Options Strategies

A step-by-step guide to understanding profit & loss diagrams

Because Money Doesnt Grow on Trees

Written by the Staff of The Options Institute

of the Chicago Board Options Exchange
 Table of Contents

Mastering Options Strategies

Why You Need This Workbook .............................................................................. 3

How to Draw Profit and Loss Diagrams ........................................................... 4-5

Call Strategies ........................................................................................................ 6

Put Strategies ......................................................................................................... 7
Straddles ................................................................................................................ 8
Strangles ................................................................................................................ 9
Call Spreads ......................................................................................................... 10
Put Spreads .......................................................................................................... 11
Stock and Option Strategies ...........................................................................12-14
Synthetic Combinations ...................................................................................... 15
Ratio Spreads ....................................................................................................... 16
Butterfly Strategies .............................................................................................. 17
Condor Strategies ................................................................................................ 18
Iron Strategies ..................................................................................................... 19
Synthetic Positions ..........................................................................................20-22

ANSWERS
Call Strategies ...................................................................................................... 23
Put Strategies ....................................................................................................... 24
Straddles .............................................................................................................. 25
Strangles .............................................................................................................. 26
Call Spreads ......................................................................................................... 27
Put Spreads .......................................................................................................... 28
Stock and Option Strategies ...........................................................................29-31
Synthetic Combinations ...................................................................................... 32
Ratio Spreads ....................................................................................................... 33
Butterfly Strategies .............................................................................................. 34
Condor Strategies ................................................................................................ 35
Iron Strategies ..................................................................................................... 36
Synthetic Positions ..........................................................................................37-39

In order to simplify the computations, commissions have NOT been included in the examples used in these materials. Commission costs will impact the outcome
of all stock and options transactions and must be considered prior to entering into any transactions.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of
Standardized Options, available to download at www.cboe.com. Copies of this document are also available from your broker or The Options Clearing Corporation
(OCC), One North Wacker Drive, Suite 500, Chicago, IL 60606 or by calling 1-888-OPTIONS. The OCC Prospectus contains information on options issued
by The Options Clearing Corporation. Copies of this document are also available from the OCC at the above address. The documents available discuss exchange-
traded options issued by The Options Clearing Corporation and are intended for educational purposes. No statement in the documents should be construed as a
recommendation to buy or sell a security or to provide investment advice.

ANY STRATEGIES DISCUSSED, INCLUDING EXAMPLES USING ACTUAL SECURITIES AND PRICE DATA, ARE STRICTLY FOR ILLUSTRA-
TIVE AND EDUCATIONAL PURPOSES ONLY AND ARE NOT TO BE CONSTRUED AS AN ENDORSEMENT, RECOMMENDATION, OR
SOLICITATION TO BUY OR SELL SECURITIES.

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE.

2
 Why You Need This Workbook

Learning the basics of options involves three steps:

1. Understand the rights and obligations of long and short
options,

2. Learn to calculate profit and loss at expiration, and

3. Master the mechanics of exercise and assignment.

This workbook takes you through each step. First, by drawing diagrams, you will
learn how to calculate profit and loss on an options expiration date. This will also
teach you recognize the potential profit, potential risk and break-even point of differ-
ent positions. This knowledge will serve you well when choosing strategies. Second,
the problems that ask you to recognize when option exercise and assignment occurs
will reinforce how options can interact with a position in the underlying stock.

After mastering the concepts taught in this workbook, your options education will
not be complete! You will still need to learn the tradeoffs that different strategies offer
and about option price behavior. Finally, to use options successfully for either invest-
ing or trading, you must learn a two-step thinking process. After identifying a goal,
the first step is initiating an option position, and the second step is closing the posi-
tion on or before the expiration date. These concepts along with many strategies are
taught in classes at The CBOEs Options Institute.

To learn more about The Options Institute classes,

schedules and/or to register,
call 1-877-THE-CBOE
or visit
www.cboe.com

3
 How to Draw Profit and Loss Diagrams
Step 1: Describe the opening transaction completely
Strategy: Long Call EXAMPLE: Buy a 50 Call @ $2
Step 2: Make a profit/loss table and a grid for the diagram.
The table (Table 1.1) should have one column for each option and one column for the total
profit/loss. On the grid (Figure 1.1), the vertical line represents profit and loss, labeled P/(L), and
the horizontal line represents a range of stock prices.
Strategy: Long Call
EXAMPLE: Buy a 50 Call @ $2
P/(L) Figure 1.1
Table 1.1
5
Stock Price Long 50 Call
at Expiration @ 2 P/(L) 4

3
57
56 2
55
1
54 Stock Price
53 0 at Expiration
52 45 50 55
-1
51
50 -2
49
-3
48
47 -4

-5

Step 3: Select a stock price at expiration and calculate the options value.
With a stock price of $55 at expiration, for example, the 50 Call has a value of $5.
P/(L) Figure 1.2
Table 1.2
5
Stock Price Long 50 Call
at Expiration @ 2 P/(L) 4

3
57
56 2
55 3
1
54 Stock Price
53 0 at Expiration
52 45 50 55
-1
51
50 -2
49
-3
48
47 -4

-5
4
 How to Draw Profit and Loss Diagrams
Step 4: Calculate the profit or loss.
For a purchased (long) option, subtract the purchase price from the value at expiration. For a sold
(short) option, subtract the value at expiration from the selling price. In this example, 5
(value at expiration) minus 2 (purchase price) equals a profit of 3. Plot the profit on the graph in
Figure 1.3.
P/(L) Figure 1.3
Table 1.3
5
Stock Price Long 50 Call
at Expiration @ 2 P/(L) 4

3
57
56 2
55 3
1
54 Stock Price
53 0 at Expiration
52 45 50 55
-1
51
50 -2
49
-3
48
47 -4

-5
Step 5: Plot the profit or loss
A stock price of $55 at expiration, in this example, yields a profit of 3 and creates the point (55, 3) on
the grid.
P/(L) Figure 1.4
Table 1.4
5
Stock Price Long 50 Call
at Expiration @ 2 P/(L) 4
3
57 5
56 4 2
55 3
1
54 2 Stock Price
53 1 0 at Expiration
52 0 45 50 55
51 (1)
-1
50 (2) -2
49 (2)
-3
48 (2)
47 (2) -4

-5

Step 6: Repeat steps 3, 4 and 5

Repeating the steps above over a range of stock prices creates a set of points which, when connected,
becomes the profit and loss diagram.
5
 Call Strategies

STRATEGY: LongCall
EXAMPLE: Buy$50Call@3
StockPrice LongCall P/(L) LONGCALL
atExpiration P/(L) 5
58
4
57
3
56
2
55
54 1

53 Stock
0
Price
52 45 50 55
-1
51
-2
50
-3
49
48 -4

-5

STRATEGY: ShortCall
EXAMPLE: Sell$50Call@3
StockPrice ShortCall P/(L) SHORTCALL
5
atExpiration P/(L)
58 4

57 3
56 2
55
1
54
0 Stock
53 Price
45 50 55
52 -1

51 -2
50 -3
49
-4
48
-5

6
 Put Strategies

STRATEGY: LongPut
EXAMPLE: Buy$50Put@2
LONGPUT
StockPrice LongPut P/(L)
atExpiration P/(L) 5
53
4
52
3
51
2
50
49 1
Stock
48 0 Price
47 45 50 55
-1
46
-2
45
-3
44
43 -4

-5

STRATEGY: ShortPut
EXAMPLE: Sell$50Put@2
P/(L)
StockPrice ShortPut SHORTPUT
5
atExpiration P/(L)
53 4

52 3
51 2
50
1
49
0
48 Stock
45 50 55 Price
47 -1

46 -2
45 -3
44
-4
43
-5

7
 Straddles

STRATEGY: LongStraddle
EXAMPLE: Buy$50Call@3and
Buy$50Put@2
P/(L) LONGSTRADDLE
5
StockPrice LongCallLongPutTotal
atExpiration P/(L)P/(L)P/(L) 4
59
3
57
2
55
53 1
Stock
51 0 Price
50 45 50 55
-1
49
-2
47
-3
44
43 -4

41 -5

STRATEGY: ShortStraddle

EXAMPLE: Sell$50Call@3and
Sell$50Put@2 P/(L) SHORTSTRADDLE
5
StockPrice ShortCallShortPutTotal 4
atExpiration P/(L)P/(L)P/(L)
59 3

57 2
55 1
53
0 Stock
51 45 50 55 Price
-1
50
49 -2

47 -3
45 -4
43
-5
41

8
 Strangles

STRATEGY: LongStrangle
EXAMPLE: Buy$55Call@11/2and
Buy$50Put@11/2
P/(L) LONGSTRANGLE
5
StockPrice LongCallLongPutTotal
atExpiration P/(L)P/(L)P/(L) 4
61
3
59
2
57
55 1
Stock
53 0 Price
51 50 55 60
-1
50
-2
49
-3
47
45 -4

43 -5

STRATEGY: ShortStrangle
EXAMPLE: Sell$55Call@11/2and
Sell$50Put@11/2
P/(L) SHORTSTRANGLE
StockPrice ShortCallShortPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
61
59 3

57 2
55 1
53
0 Stock
51 50 55 60 Price
-1
50
49 -2

47 -3
45 -4
43
-5

9
 Call Spreads

STRATEGY: LongCallSpread
EXAMPLE: Buy$50Call@4and
Sell$55Call@2
P/(L) LONGCALLSPREAD
5
StockPrice LongCallShortCallTotal
atExpiration P/(L)P/(L)P/(L) 4
58
3
57
2
56
55 1

54 0 Stock
Price
53 50 55 60
-1
52
-2
51
-3
50
49 -4

48 -5

STRATEGY: ShortCallSpread
EXAMPLE: Sell$50Call@4and
Buy$55Call@2
P/(L) SHORTCALLSPREAD
StockPrice ShortCallLongCallTotal 5
atExpiration P/(L)P/(L)P/(L)
4
58
57 3

56 2
55 1
54
0
Stock
53 50 55 60 Price
-1
52
51 -2

50 -3
49 -4
48
-5

10
 Put Spreads

STRATEGY: LongPutSpread
EXAMPLE: Buy$50Put@31/2and
Sell$45Put@11/2
P/(L) LONGPUTSPREAD
5
StockPrice LongPutShortPutTotal
atExpiration P/(L)P/(L)P/(L) 4
53
3
52
2
51
50 1
Stock
49 0 Price
48 45 50 55
-1
47
-2
46
-3
45
44 -4

43 -5

STRATEGY: ShortPutSpread
EXAMPLE: Sell$50Put@31/2and
Buy$45Put@11/2
SHORTPUTSPREAD
StockPrice ShortPutLongPutTotalP/(L)
atExpiration P/(L)P/(L)P/(L) 5

53 4
52 3
51
2
50
1
49
Stock
48 0 Price
45 50 55
47 -1
46 -2
45
-3
44
-4
43
-5

11
 Stock and Option Strategies

STRATEGY: ProtectivePut
EXAMPLE: BuyStock@50and
Buy$50Put@2
P/(L) PROTECTIVEPUT
StockPrice LongStockLongPutTotal
atExpiration P/(L)P/(L)P/(L) 5

57 4
56
3
55
2
54
1 Stock
53 Price
52 0
45 50 55
51 -1
50 -2
49
-3
48
-4
47
-5

STRATEGY: CoveredWrite
EXAMPLE: BuyStock@50and
Sell$50Call@3
P/(L) COVEREDWRITE
StockPrice LongStockShortCallTotal 5
atExpiration P/(L)P/(L)P/(L)
4
53
52 3

51 2
50 1
49
0 Stock
48 45 50 55 Price
-1
47
46 -2

45 -3
44 -4
43
-5

12
 Stock and Option Strategies

STRATEGY: LongStock+ShortStraddle
EXAMPLE: BuyStock@50and
Sell$50Call@3and
Sell$50Put@2 LONGSTOCK+SHORTSTRADDLE
P/(L)
StockPriceLongStockShortCallShortPutTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L)
4
55
3
54
53 2

52 1
51 0 Stock
Price
50 45 50 55
-1
49
-2
48
47 -3

46 -4
45 -5

STRATEGY: LongStock+ShortStrangle
EXAMPLE: BuyStock@52and
Sell1$55Call@1and LONGSTOCK+SHORTSTRANGLE
Sell1$50Put@1 P/(L)

StockPriceLongStockShortCallShortPutTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L) 4
56
3
55
2
54
53 1

52 0 Stock
Price
51 50 55 60
-1
50
-2
49
-3
48
47 -4

46 -5

13
 Stock and Option Strategies

STRATEGY: LongStock+RatioCallSpread
EXAMPLE: BuyStock@50and LONGSTOCK+RATIOCALLSPREAD
Buy1$50Call@3and
Sell2$55Calls@11/2each P/(L)
10
StockPriceLongStockLongCallShortCallsTotal
atExpirationP/(L)P/(L)P/(L)P/(L) 9
8
56
7
55
6
54 5
53 4
3
52
2
51
1
50 0 Stock
Price
49 -1 45 50 55
-2
48
-3
47
-4
46 -5

STRATEGY: LongStock+Collar

EXAMPLE: BuyStock@52and
Sell1$55Call@1and LONGSTOCK+COLLAR
Buy1$50Put@1
P/(L)
StockPriceLongStockShortCallLongPutTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L)
4
58
57 3

56 2

55 1
54 Stock
0
Price
53 50 55 60
-1
52
-2
51
50 -3

49 -4
48
-5

14
 Synthetic Combinations

STRATEGY: LongSplit-StrikeSynthetic
EXAMPLE: Buy1$55Call@11/2and
Sell1$50Put@1 LONGSPLIT-STRIKESYNTHETIC
P/(L)
5
StockPrice LongCallShortPutTotal
atExpiration P/(L)P/(L)P/(L) 4
59
3
58
2
57

56 1
Stock
55 0 Price
53 50 55 60
-1
51
-2
50
-3
49
48 -4

47 -5

STRATEGY: ShortSplit-StrikeSynthetic

EXAMPLE: Sell1$55Call@11/2and SHORTSPLIT-STRIKESYNTHETIC

Buy1$50Put@1
P/(L)
StockPriceShortCallLongPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
59
58 3

57 2

56 1
55
0
53 50 55 60 Stock
-1
51 Price

50 -2

49 -3

48 -4
47
-5

15
 Ratio Spreads

STRATEGY: 1X2RatioVerticalSpreadWithCalls 1X2RATIOVERTICALSPREAD

EXAMPLE: Buy1$50Call@3and WITHCALLS
Sell2$55Calls@1each (FRONTSPREAD)
StockPrice LongCallShortCallsTotal P/(L)
atExpirationP/(L)P/(L)P/(L)
5
62
60 4

59 3
58 2
57
1
56
0 Stock
55 Price
50 55 60
54 -1

53 -2
52 -3
51
-4
50
-5
48

STRATEGY: 1X2RatioVolatiltySpreadWithCalls 1X2RATIOVOLATILITYSPREAD

EXAMPLE: Sell1$50Call@3and WITHCALLS
Buy2$55Calls@1each (BACKSPREAD)

StockPrice ShortCallLongCallsTotal P/(L)

atExpirationP/(L)P/(L)P/(L)
5
62
4
60
59 3

58 2
57
1
56
0 Stock
55 50 55 60 Price
-1
54
53 -2

52 -3
51
-4
50
-5
48

16
 Butterfly Strategies

STRATEGY: CallButterfly
EXAMPLE: Buy1$45Call@6and
Sell2$50Calls@3ea.and
Buy1$55Call@1 LONGCALLBUTTERFLY
P/(L)
StockPriceLongCallShortCallsLongCallTotal
atExpirationP/(L)P/(L)P/(L)P/(L) 5
56 4
55
3
54
53 2
52 1
51 Stock
0 Price
50
45 50 55
49 -1
48 -2
47
-3
46
45 -4
44 -5

STRATEGY: ShortButterflywithCalls
EXAMPLE: Sell1$45Call@6and
Buy2$50Calls@3ea.and SHORTCALLBUTTERFLY
Sell1$55Call@1
P/(L)
StockPriceShortCallLongCallsShortCallTotal
atExpirationP/(L)P/(L)P/(L)P/(L) 5

56 4
55
3
54
53 2

52 1
51
0 Stock
50 45 50 55 Price
49
-1

48 -2
47
-3
46
45 -4

44 -5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

17
 Condor Strategies

STRATEGY: LongCondorwithCalls
EXAMPLE: Buy1$45Call@6and
Sell1$50Call@4and
Sell1$55Call@2and LONGCALLCONDOR
Buy1$60Call@1
P/(L)
StockPriceLong45Short50Short55Long60Total 5
atExpirationP/(L)P/(L)P/(L)P/(L)P/(L)
4
62
60 3
58 2
56
1
55
0 Stock
54
Price
45 50 55 60
52 -1
50
-2
48
46 -3

45 -4
44
-5

STRATEGY: ShortCondorwithCalls
EXAMPLE: Sell1$45Call@6and
Buy1$50Call@4and
Buy1$55Call@2and SHORTCALLCONDOR
Sell1$60Call@1
P/(L)
StockPriceShort45Long50Long55Short60Total 5
atExpirationP/(L)P/(L)P/(L)P/(L)P/(L)
4
62
60 3
58 2
56
1
55
Stock
54 0
Price
52 45 50 55 60
-1
50
-2
48
46 -3
45 -4
44
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

18
 Iron Strategies

STRATEGY: IronButterfly
EXAMPLE: Buy1$45Put@1and
Sell1$50Put@3and
Sell1$50Call@3and IRONBUTTERFLY
Buy1$55Call@1
P/(L)
StockPriceLongPutShortPutShortCallLongCallTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L)P/(L)
4
56
55 3
54 2
53
1
52
0 Stock
51
Price
45 50 55
50 -1
49
-2
48
47 -3

46 -4
45
-5
44

STRATEGY: IronCondor
EXAMPLE: Buy1$45Put@1and
Sell1$50Put@3and
Sell1$55Call@3and IRONCONDOR
Buy1$60Call@1
P/(L)
StockPriceLongPutShortPutShortCallLongCallTotal
5
atExpirationP/(L)P/(L)P/(L)P/(L)P/(L)
62 4
60
3
58
2
56
55 1
54 Stock
0
Price
52 45 50 55 60
-1
50
48 -2
46 -3
45
-4
44
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

19
 Synthetic Positions

STRATEGY: SyntheticLongStock
EXAMPLE: Buy1$50Call@2and
Sell1$50Put@2 SYNTHETICLONGSTOCK
P/(L)
5
StockPrice LongCallShortPutTotal
atExpiration P/(L)P/(L)P/(L) 4
55
3
54
2
53
52 1

51 0 Stock
Price
50 45 50 55
-1
49
-2
48
-3
47
46 -4

45 -5

STRATEGY: SyntheticShortStock
EXAMPLE: Sell1$50Call@2and SYNTHETICSHORTSTOCK
Buy1$50Put@2
P/(L)
StockPrice ShortCallLongPutTotal
atExpiration P/(L)P/(L)P/(L) 5

55 4
54 3
53
2
52
1
51
0 Stock
50
Price
45 50 55
49 -1
48 -2
47
-3
46
-4
45
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

20
 Synthetic Positions

STRATEGY: SyntheticLongCall
EXAMPLE: BuyStock@50and
Buy1$50Put@2 SYNTHETICLONGCALL
P/(L)
5
StockPrice LongStockLongPutTotal
atExpiration P/(L)P/(L)P/(L) 4
55
3
54
2
53
52 1

51 0 Stock
Price
50 45 50 55
-1
49
-2
48
-3
47
46 -4

45 -5

STRATEGY: SyntheticShortCall
EXAMPLE: SellStockShort@50and SYNTHETICSHORTCALL
Sell1$50Put@2
P/(L)
StockPrice ShortStockShortPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
55
3
54
53 2

52 1
51 0
Stock
Price
50 45 50 55
-1
49
-2
48
47 -3

46 -4
45 -5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

21
 Synthetic Positions

STRATEGY: SyntheticLongPut
EXAMPLE: SellStockShort@50and
Buy1$50Call@2 SYNTHETICLONGPUT
P/(L)
5
StockPrice ShortStockLongCallTotal
atExpiration P/(L)P/(L)P/(L) 4
55
3
54
2
53
52 1

51 0 Stock
Price
50 45 50 55
-1
49
-2
48
-3
47
46 -4

45 -5

STRATEGY: SyntheticShortPut
EXAMPLE: BuyStock@50and SYNTHETICSHORTPUT
Sell1$50Call@2
P/(L)
StockPriceLongStockShortCallTotal 5
atExpiration P/(L)P/(L)P/(L)
4
55
54 3

53 2
52 1
51
0 Stock
50 Price
45 50 55
-1
49
48 -2

47 -3
46 -4
45
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

Page17

22
 ANSWERS: Call Strategies

STRATEGY: LongCall
EXAMPLE: Buy$50Call@3
StockPrice LongCall P/(L) LONGCALL
atExpiration P/(L) 5
58 5
4
57 4
3
563
2
552
541 1

530 Stock
0
Price
52(1) 45 50 55
-1
51(2)
-2
50(3)
-3
49(3)
48(3) -4

-5

STRATEGY: ShortCall
EXAMPLE: Sell$50Call@3
StockPrice ShortCall P/(L) SHORTCALL
atExpiration P/(L) 5
58 (5) 4
57 (4)
3
56(3)
2
55(2)
54(1) 1
Stock
530 0 Price
521 45 50 55
-1
512
-2
503
-3
493
483 -4

-5

23
 ANSWERS: Put Strategies

STRATEGY: LongPut
EXAMPLE: Buy$50Put@2
LONGPUT
StockPrice LongPut P/(L)
atExpiration P/(L) 5
53 (2)
4
52 (2)
3
51(2)
2
50(2)
49(1) 1
Stock
480 0 Price
471 45 50 55
-1
462
-2
453
-3
444
435 -4

-5

STRATEGY: ShortPut
EXAMPLE: Sell$50Put@2
P/(L)
StockPrice ShortPut SHORTPUT
5
atExpiration P/(L)
53 2 4

52 2 3
512
2
502
1
491
0 Stock
480 Price
45 50 55
47(1) -1

46(2) -2
45(3) -3
44(4)
-4
43(5)
5

24
 ANSWERS: Straddles

STRATEGY: LongStraddle
EXAMPLE: Buy$50Call@3and
Buy$50Put@2
P/(L) LONGSTRADDLE
5
StockPrice LongCallLongPutTotal
atExpiration P/(L)P/(L)P/(L) 4
59 6 (2)4
3
57 4 (2)2
2
552 (2)0
530 (2)(2) 1
Stock
51(2) (2)(4) 0 Price
50(3) (2)(5) 45 50 55
-1
49(3) (1)(4)
-2
47(3) 1(2)
-3
45(3) 30
43(3) 52 -4

41(3) 74 -5

STRATEGY: ShortStraddle

EXAMPLE: Sell$50Call@3and
Sell$50Put@2 SHORTSTRADDLE
P/(L)
StockPrice ShortCallShortPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
59 (6) 2(4)
57 (4) 2(2) 3
55(2) 20 2
530 22
1
512 24
0 Stock
503 25 Price
45 50 55
-1
493 14
473 (1)2 -2

453 (3)0 -3
433 (5)(2)
-4
413 (7)(4)
-5

25
 ANSWERS: Strangles

STRATEGY: LongStrangle
EXAMPLE: Buy$55Call@11/2and
Buy$50Put@11/2
P/(L) LONGSTRANGLE
5
StockPrice LongCallLongPutTotal
atExpiration P/(L)P/(L)P/(L) 4
61 41/2(11/2)3
3
59 21/2(11/2)1
2
571/2(11/2)(1)
55(11/2)(11/2)(3) 1
Stock
53(11/2)(11/2)(3) 0 Price
51(11/2)(11/2)(3) 45 50 55 60
-1
50(11/2)(11/2)(3)
-2
49(11/2)(1/2)(2)
-3
47(11/2)11/20
45(11/2)31/22 -4

43(11/2)51/24 -5

STRATEGY: ShortStrangle
EXAMPLE: Sell$55Call@11/2and
Sell$50Put@11/2
P/(L) SHORTSTRANGLE
StockPrice ShortCallShortPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
61 (41/2)11/2(3)
59 (21/2)11/2(1) 3

57(1/2)11/21 2
5511/211/23 1
5311/211/23
0 Stock
5111/211/23 45 50 55 60 Price
-1
5011/211/23
4911/21/22 -2

4711/2(11/2)0 -3
4511/2(31/2)(2) -4
4311/2(51/2)(4)
-5

26
 ANSWERS: Call Spreads

STRATEGY: LongCallSpread
EXAMPLE: Buy$50Call@4and
Sell$55Call@2
P/(L) LONGCALLSPREAD
5
StockPrice LongCallShortCallTotal
atExpiration P/(L)P/(L)P/(L) 4
58 4(1)3
3
57 303
2
56 213
55 123 1
Stock
54022 0 Price
53 (1)21 50 55 60
-1
52 (2)20
-2
51 (3)2(1)
-3
50 (4)2(2)
49 (4)2(2) -4

48 (4)2(2) -5

STRATEGY: ShortCallSpread
EXAMPLE: Sell$50Call@4and
Buy$55Call@2
SHORTCALLSPREAD
StockPrice ShortCallLongCallTotalP/(L)
atExpiration P/(L)P/(L)P/(L) 5
58 (4)1(3)
4
57 (3)0(3)
3
56 (2)(1)(3)
55 (1)(2)(3) 2

540(2)(2) 1
53 1(2)(1)
0 Stock
Price
52 2(2)0 50 55 60
-1
51 3(2)1
-2
50 4(2)2
-3
49 4(2)2
48 4(2)2 -4
-5

27
 ANSWERS: Put Spreads

STRATEGY: LongPutSpread
EXAMPLE: Buy$50Put@31/2and
Sell$45Put@11/2
P/(L) LONGPUTSPREAD
5
StockPrice LongPutShortPutTotal
atExpiration P/(L)P/(L)P/(L) 4
53 (31/2)11/2(2)
3
52 (31/2)11/2(2)
2
51 (31/2)11/2(2)
50 (31/2)11/2(2) 1
Stock
49 (21/2)11/2(1) 0 Price
48 (11/2)11/20 45 50 55
-1
47 (1/2)11/21
-2
46 1/211/22
-3
45 11/211/23
44 21/21/23 -4

43 31/2(1/2)3 -5

STRATEGY: ShortPutSpread
EXAMPLE: Sell$50Put@31/2and
Buy$45Put@11/2
P/(L) SHORTPUTSPREAD
StockPrice ShortPutLongPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
53 31/2(11/2)2
52 31/2(11/2)2 3

51 31/2(11/2)2 2
50 31/2(11/2)2 1
49 21/2(11/2)1
0 Stock
48 11/2(11/2)0 45 50 55 Price
-1
47 1/2(11/2)(1)
46 (1/2)(11/2)(2) -2

45 (11/2)(11/2)(3) -3
44 (21/2)(1/2)(3) -4
43 (31/2)1/2(3)
-5

28
 ANSWERS: Stock and Option Strategies

STRATEGY: ProtectivePut
EXAMPLE: BuyStock@50and
Buy$50Put@2
P/(L) PROTECTIVEPUT
StockPrice LongStockLongPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
57 7(2)5
56 6(2)4 3

55 5(2)3 2
54 4(2)2
1
Stock
53 3(2)1 Price
0
52 2(2)0 45 50 55
-1
51 1(2)(1)
50 0(2)(2) -2

49 (1)(1)(2) -3
48(2)0(2)
-4
47(3)1(2)
-5

STRATEGY: CoveredWrite
EXAMPLE: BuyStock@50and
Sell$50Call@3
P/(L) COVEREDWRITE
StockPrice LongStockShortCallTotal
atExpiration P/(L)P/(L)P/(L) 5

52 213 4
51 123 3
50 033
2
49 (1)32
1
48 (2)31
Stock
47 (3)30 0 Price
45 50 55
46 (4)3(1) -1
45 (5)3(2) -2
44(6)3(3)
-3
43(7)3(4)
-4
42(8)3(5)
-5

29
 ANSWERS: Stock and Option Strategies

STRATEGY: LongStock+ShortStraddle
EXAMPLE: BuyStock@50and
Sell$50Call@3and
Sell$50Put@2 LONGSTOCK+SHORTSTRADDLE
P/(L)
StockPriceLongStockShortCallShortPutTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L)
4
555(2)25
3
544(1)25
533025 2

522125 1
511225 0 Stock
Price
500325 45 50 55
-1
49(1)313
-2
48(2)301
47(3)3(1)(1) -3

46(4)3(2)(3) -4
45(5)3(3)(5) -5

STRATEGY: LongStock+ShortStrangle
EXAMPLE: BuyStock@52and
Sell1$55Call@1and LONGSTOCK+SHORTSTRANGLE
Sell1$50Put@1 P/(L)

StockPriceLongStockShortCallShortPutTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L) 4
564015
3
553115
2
542114
531113 1

520112 0 Stock
Price
51(1)111 50 55 60
-1
50(2)110
-2
49(3)10(2)
-3
48(4)1(1)(4)
47(5)1(2)(6) -4

46(6)1(3)(8) -5

30
 ANSWERS: Stock and Option Strategies

STRATEGY: LongStock+RatioCallSpread
EXAMPLE: BuyStock@50and LONGSTOCK+RATIOCALLSPREAD
Buy1$50Call@3and
Sell2$55Calls@11/2each P/(L)
10
StockPriceLongStockLongCallShortCallsTotal
9
atExpirationP/(L)P/(L)P/(L)P/(L)
8
5663110
7
5552310 6

544138 5
4
533036
3
522(1)34
2
511(2)32 1

500(3)30 0 Stock
-1
45 50 55 Price
49(1)(3)3(1)
-2
48(2)(3)3(2)
-3
47(3)(3)3(3) -4

46(4)(3)3(4) -5

STRATEGY: LongStock+Collar

EXAMPLE: BuyStock@52and
Sell1$55Call@1and LONGSTOCK+COLLAR
Buy1$50Put@1
P/(L)
StockPriceLongStockShortCallLongPutTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L)
4
586(2)(1)3
575(1)(1)3 3

5640(1)3 2

5531(1)3 1
5421(1)2 Stock
0
Price
5311(1)1 50 55 60
-1
5201(1)0
-2
51(1)1(1)(1)
50(2)1(1)(2) -3

49(3)10(2) -4
48(4)11(2)
-5

31
 ANSWERS: Synthetic Combinations

STRATEGY: LongSplit-StrikeSynthetic
EXAMPLE: Buy1$55Call@11/2and
Sell1$50Put@1 LONGSPLIT-STRIKESYNTHETIC
P/(L)
5
StockPrice LongCallShortPutTotal
atExpiration P/(L)P/(L)P/(L) 4
5921/2131/2
3
58 11/2 121/2
2
57 1/2 111/2
56(1/2) 11/2 1
Stock
55(11/2) 1(1/2) 0 Price
53(11/2) 1(1/2) 50 55 60
-1
51(11/2) 1(1/2)
-2
50(11/2) 1(1/2)
-3
49(11/2) 0(11/2)
48(11/2) (1)(21/2) -4

47(11/2)(2)(31/2) -5

STRATEGY: ShortSplit-StrikeSynthetic

EXAMPLE: Sell1$55Call@11/2and SHORTSPLIT-STRIKESYNTHETIC

Buy1$50Put@1
P/(L)
StockPriceShortCallLongPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
59(21/2)(1)(31/2)
58 (11/2) (1)(21/2) 3

57 (1/2) (1)(11/2) 2

561/2 (1)(1/2) 1
5511/2 (1)1/2
0
5311/2 (1)1/2 50 55 60 Stock
-1 Price
5111/2 (1)1/2
5011/2 (1)1/2 -2

4911/2 011/2 -3

4811/2 121/2 -4
4711/2231/2
-5

32
 ANSWERS: Ratio Spreads

STRATEGY: 1X2RatioVerticalSpreadWithCalls 1X2RATIOVERTICALSPREAD

EXAMPLE: Buy1$50Call@3and WITHCALLS
Sell2$55Calls@1each (FRONTSPREAD)
StockPrice LongCallShortCallsTotal P/(L)
atExpirationP/(L)P/(L)P/(L)
5
629(12)(3)
607(8)(1) 4

596(6)0 3
585(4)1 2
574(2)2
1
56303
0 Stock
55224 Price
50 55 60
54123 -1

53022 -2
52(1)21 -3
51(2)20
-4
50(3)2(1)
-5
48(3)2(1)

STRATEGY: 1X2RatioVolatiltySpreadWithCalls 1X2RATIOVOLATILITYSPREAD

EXAMPLE: Sell1$50Call@3and WITHCALLS
Buy2$55Calls@1each (BACKSPREAD)
StockPrice ShortCallLongCallsTotal P/(L)
atExpirationP/(L)P/(L)P/(L)
5
62(9)123
4
60(7)81
59(6)60 3

58(5)4(1) 2
57(4)2(2)
1
56(3)0(3)
0 Stock
55(2)(2)(4) 50 55 60 Price
-1
54(1)(2)(3)
530(2)(2) -2

521(2)(1) -3
512(2)0
-4
503(2)1
-5
483(2)1

33
 ANSWERS: Butterfly Strategies

STRATEGY: CallButterfly
EXAMPLE: Buy1$45Call@6and
Sell2$50Calls@3ea.and
Buy1$55Call@1 LONGCALLBUTTERFLY
P/(L)
StockPriceLongCallShortCallsLongCallTotal
atExpirationP/(L)P/(L)P/(L)P/(L) 5
565(6)0(1) 4
554(4)(1)(1)
3
543(2)(1)0
5320(1)1 2
5212(1)2 1
5104(1)3 Stock
0 Price
50(1)6(1)4
45 50 55
49(2)6(1)3 -1
48(3)6(1)2 -2
47(4)6(1)1
-3
46(5)6(1)0
45(6)6(1)(1) -4
44(6)6(1)(1) -5

STRATEGY: ShortButterflywithCalls
EXAMPLE: Sell1$45Call@6and
Buy2$50Calls@3ea.and
Sell1$55Call@1 SHORTCALLBUTTERFLY
P/(L)
StockPriceShortCallLongCallsShortCallTotal
atExpirationP/(L)P/(L)P/(L)P/(L) 5

56(5)601 4
55(4)411
3
54(3)210
53(2)01(1) 2

52(1)(2)1(2) 1
510(4)1(3)
0 Stock
501(6)1(4) Price
45 50 55
492(6)1(3) -1

483(6)1(2) -2
474(6)1(1)
-3
465(6)10
456(6)11 -4

446(6)11 -5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

34
 ANSWERS: Condor Strategies

STRATEGY: LongCondorwithCalls
EXAMPLE: Buy1$45Call@6and
Sell1$50Call@4and
Sell1$55Call@2and LONGCALLCONDOR
Buy1$60Call@1
P/(L)
StockPriceLong45Short50Short55Long60Total 5
atExpirationP/(L)P/(L)P/(L)P/(L)P/(L)
4
6211(8)(5)1(1)
609(6)(3)(1)(1) 3
587(4)(1)(1)1 2
565(2)1(1)3
1
554(1)2(1)4
0 Stock
54302(1)4
Price
45 50 55 60
52122(1)4 -1
50(1)42(1)4
-2
48(3)42(1)2
46(5)42(1)0 -3

45(6)42(1)(1) -4
44(6)42(1)(1)
-5

STRATEGY: ShortCondorwithCalls
EXAMPLE: Sell1$45Call@6and
Buy1$50Call@4and
Buy1$55Call@2and
Sell1$60Call@1 SHORTCALLCONDOR
P/(L)
StockPriceShort45Long50Long55Short60Total
5
atExpirationP/(L)P/(L)P/(L)P/(L)P/(L)
62(11)85(1)1 4
60(9)6311
3
58(7)411(1)
2
56(5)2(1)1(3)
55(4)1(2)1(4) 1
54(3)0(2)1(4) 0 Stock
52(1)(2)(2)1(4) 45 50 55 60 Price
-1
501(4)(2)1(4)
483(4)(2)1(2) -2
465(4)(2)10 -3
456(4)(2)11
-4
446(4)(2)11
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

35
 ANSWERS: Iron Strategies

STRATEGY: IronButterfly
EXAMPLE: Buy1$45Put@1and
Sell1$50Put@3and
Sell1$50Call@3and IRONBUTTERFLY
Buy1$55Call@1
P/(L)
StockPriceLongPutShortPutShortCallLongCallTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L)P/(L)
4
56(1)3(3)0(1)
55(1)3(2)(1)(1) 3
54(1)3(1)(1)0 2
53(1)30(1)1
1
52(1)31(1)2
0 Stock
51(1)32(1)3
Price
45 50 55
50(1)33(1)4 -1
49(1)23(1)3
-2
48(1)13(1)2
47(1)03(1)1 -3

46(1)(1)3(1)0 -4
45(1)(2)3(1)(1)
-5
440(3)3(1)(1)

STRATEGY: IronCondor
EXAMPLE: Buy1$45Put@1and
Sell1$50Put@3and
Sell1$55Call@3and IRONCONDOR
Buy1$60Call@1
P/(L)
StockPriceLongPutShortPutShortCallLongCallTotal 5
atExpirationP/(L)P/(L)P/(L)P/(L)P/(L)
4
62(1)3(4)0(1)
60(1)3(2)(1)(1) 3
58(1)30(1)1 2
56(1)32(1)3
1
55(1)33(1)4
Stock
54(1)33(1)4 0
Price
52(1)33(1)4
45 50 55 60
-1
50(1)33(1)4
-2
48(1)13(1)2
46(1)(1)3(1)0 -3
45(1)(2)3(1)(1) -4
440(3)3(1)(1)
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

36
 ANSWERS: Synthetic Positions

STRATEGY: SyntheticLongStock
EXAMPLE: Buy1$50Call@2and
Sell1$50Put@2 SYNTHETICLONGSTOCK
P/(L)
StockPrice LongCallShortPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
55325
54224 3

53123 2
52022
1
51(1)21 Stock
0 Price
50(2)20 45 50 55
-1
49(2)1(1)
48(2)0(2) -2

47(2)(1)(3) -3
46(2)(2)(4)
-4
45(2)(3)(5)
-5

STRATEGY: SyntheticShortStock
EXAMPLE: Sell1$50Call@2and
Buy1$50Put@2 SYNTHETICSHORTSTOCK
P/(L)
StockPrice ShortCallLongPutTotal
atExpiration P/(L)P/(L)P/(L) 5

55(3)(2)(5) 4
54(2)(2)(4) 3
53(1)(2)(3)
2
520(2)(2)
1
511(2)(1)
0 Stock
502(2)0
Price
45 50 55
492(1)1 -1
48202 -2
47213
-3
46224
-4
45235
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

37
 ANSWERS: Synthetic Positions

STRATEGY: SyntheticLongCall
EXAMPLE: BuyStock@50and
Buy1$50Put@2 SYNTHETICLONGCALL
P/(L)
StockPrice LongStockLongPutTotal 5
atExpiration P/(L)P/(L)P/(L)
4
555(2)3
544(2)2 3

533(2)1 2
522(2)0 1
511(2)(1) Stock
0 Price
500(2)(2) 45 50 55
-1
49(1)(1)(2)
48(2)0(2) -2

47(3)1(2) -3
46(4)2(2) -4
45(5)3(2)
-5

STRATEGY: SyntheticShortCall
EXAMPLE: SellStockShort@50and
Sell1$50Put@2 SYNTHETICSHORTCALL
P/(L)
StockPrice ShortStockShortPutTotal
atExpiration P/(L)P/(L)P/(L) 5

55(5)2(3) 4
54(4)2(2) 3
53(3)2(1)
2
52(2)20
1
51(1)21
50022 0
45 50 55
49112 -1
48202 Stock
-2
Price
473(1)2
-3
464(2)2
-4
455(3)2
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

38
 ANSWERS: Synthetic Positions

STRATEGY: SyntheticLongPut
EXAMPLE: SellStockShort@50and
Buy1$50Call@2 SYNTHETICLONGPUT
P/(L)
5
StockPrice ShortStockLongCallTotal
atExpiration P/(L)P/(L)P/(L) 4
55(5)3(2)
3
54(4)2(2)
2
53(3)1(2)
52(2)0(2) 1

51(1)(1)(2) 0 Stock
Price
500(2)(2) 45 50 55
-1
491(2)(1)
-2
482(2)0
-3
473(2)1
464(2)2 -4

455(2)3 -5

STRATEGY: SyntheticShortPut
EXAMPLE: BuyStock@50and
Sell1$50Call@2 SYNTHETICSHORTPUT
P/(L)
StockPriceLongStockShortCallTotal5
atExpiration P/(L)P/(L)P/(L)
4
555(3)2
544(2)2 3

533(1)2 2
52202 1
51112
0 Stock
50022 Price
45 50 55
-1
49(1)21
48(2)20 -2

47(3)2(1) -3
46(4)2(2) -4
45(5)2(3)
-5

Thesestrategiesarepresentedforeducationalpurposesonly.Transactioncostsmaymakethese
impracticalforindividualinvestors.

Workbook created by William Gaynor - The Optons Institute, 1998.

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400 S. LaSalle, Chicago, IL 60605 1-877-THE-CBOE www.cboe.com

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