While a simple view on both volatility and equity market
direction can be implemented via a long or short position in a call or put, a
far wider set of payoffs is possible if two or three different options are
used. We investigate strategies using option structures (or option combos) that
can be used to meet
different investor needs.
BULLISH COMBOS ARE REVERSE OF BEARISH
Using option structures to implement a bearish strategy has
already been discussed in the section 1.5 Protection Strategies Using Options.
In the same way a long put protection can be cheapened by selling an OTM put
against the put protection (to create a put spread giving only partial
protection), a call can be cheapened by selling an OTM call (to create a call
spread offering only partial upside). Similarly, the upside exposure of the
call (or call spread) can be funded by put underwriting (just as put or put
spread protection can be funded by call overwriting). The four option
structures for bullish strategies are given below.
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