profit patterns involved option strategies

the most common patterns we might have seen for options trading could be the following patterns. when an investor conduct a portfolio which consists of a long position in a stock plus a short position in call option. we simply call is as writing a covered call. more of concepts would not be mentioned here as have been available either textbooks or online dictionary.

As can be seen to the following diagrams. from(a), investors do not have to consist of a single portfolio by conducting a short put position. Instead, go long a stock and short call also can get the similar effect for the trading of investment. Similarly, for (b), long call+short stock=long put, (c) long put+long stock=long call. (d) short stock+short put=short call.

 

Additionally, a more sophisticated strategies would be illustrated as following. (bull spreads by using call or put options, bear spreads created by using put or call options. box spreads, butterfly spreads calendar spreads diagonal spreads, straddle, stripes and straps strangles)

As it may take quite a long while to go through all of them, here i am gonna introduce some of them that are regarded as most valuable tips when involved trading.

Initially, for a box spread, it is a combination of a bull call spread with strike price K1 and K2 and a bear put spread with the same two strikes prices. why'd be valuable to be mentioned here as an arbitrage opportunity can be shown if trading with European options.

Butterfly spread, on the other hand, can create a more aggressive trading for investors. A butterfly spread involves positions with three different strike prices. An investor reckon the stock price is gonna be stayed close at K2 which means that the price does not change dramatically, it can be created by buying a call option with a relatively low strike price K1, buying a call option with a relatively high strike price K3 and selling two call options with strike price k2 which halfway between K1 and K3. However, it would lead to small loss if the price move significantly in either direction.

When an investor believe there is a significant movement the share price, it can be simply to conducting a butterfly spread of put options. By buying two puts with strike price K2, one with a low strike price K1 and one with a high strike price K3 can be exposed to mega profits if the share price goes up sharply.