Part 4 Learn Institutional Trading

Advanced Strategies

Straddle: Buy a call and a put at the same strike and expiry to profit from volatility.

Strangle: Buy OTM call and put for cheaper volatility bets.

Spread Strategies: Combine multiple calls or puts to limit risk and reward:

Bull Call Spread: Buy call at lower strike, sell call at higher strike.

Bear Put Spread: Buy put at higher strike, sell put at lower strike.

Iron Condor: Combine calls and puts to profit from low volatility.

Butterfly Spread: Profit from minimal movement around a central strike.

Pricing of Options

Option pricing is influenced by several factors:

Intrinsic Value

The real value if exercised today.

Call option IV = Max(Current Price – Strike, 0)

Put option IV = Max(Strike – Current Price, 0)

Time Value

Extra premium due to time until expiration.

TV = Option Premium – Intrinsic Value