OPTION STRATEGIES TO

MITIGATE RISK
 Bull and bear strategy

 Bull call

• An investor will simultaneously buy calls at a specific 

strike price and sell the same number of calls at a higher strike price.

• Both call options will have the same expiration and underlying asset.

• This type of 

vertical spread strategy is often used when an investor is bullish on the
underlying and expects a moderate rise in the price of the asset.

• The
investor limits his/her upside on the trade, but reduces the net premium
spent compared to buying a naked call option
outright
Bear Put

•  bear put spread strategy is another form of vertical spread.

•
In this strategy, the investor will simultaneously purchase put opti
ons at a specific strike price and sell the same number of puts at
a lower strike price
.

•
Both options would be for the same underlying asset and have th
e same expiration date
.

•
This strategy is used when the trader is bearish and expects the
underlying asset's price to decline
.

• It offers both limited losses and limited gains.

Straddle

• long
straddle options strategy is when an investor simultaneously purcha
ses a call and put option on the same
underlying asset, with the same strike price and expiration date.

•
An investor will often use this strategy when he or she believes the
price of the underlying asset will move significantly out of a range, b
ut is unsure of which direction the move will take.

• This
strategy allows the investor to have the opportunity for theoretically
unlimited gains, while the maximum loss is limited only to the cost o
f both options contracts combined.
 Buy one Call option EP=1100rs 55premium
buy one put option EP=1100 rs 40premium

Cost of the strategy=95rs

max loss
Break even point for call option=1100+95=1195
put option=1100-95=1005
Strangle

•  strangle options strategy, the investor purchases an out-of-the-money call

option and an out-of-the-money put option simultaneously on the same
underlying asset and expiration date.

• An investor who uses this strategy believes the underlying asset's price
will experience a very large movement, but is unsure of which direction the
move will take.

• Strangles will almost always be less expensive than straddle because

options purchased are out of the money.
Butterfly strategy

• All of the strategies up to this point have required a

combination of two different positions or contracts.

• In a long butterfly
spread using call options, an investor will combine both a 
bull spread strategy and a 
bear spread strategy, and use three different 
strike prices. All options are for the same underlying asset and
expiration date
.
• For example,
• a long butterfly spread can be constructed by purchasing one
in-the-money call option at a lower strike price, while selling
twoat
-the-money call options, and buying one out-of-the-money call
option. A balanced butterfly spread will have the same wing wi
dths
Non volatile Butterfly

• In this strategy, an investor will sell an at-the-money put and

buy an out-of-the-money put, while also selling an at-the-
money call and buying an out-of-the-money call.

• All options have the same expiration date and are on the
same underlying asset.

• Although similar to the butterfly

spread, this strategy differs because it uses both calls and pu
ts, as opposed to one or the other.
① Maximum Loss Or Cost of Strategy = Initial cash outflow ( Premium)

② Maximum Profit= (Difference in EP) - Max. Loss

③ Break even point= Lower EP + Max loss

or
Higher EP – Max profit