Name
Covered call
Protective put
Bull spread
Bear spread (calls)
Bear spread (puts)
Butterfly spread (calls)
Butterfly spread (puts)
Straddle
Reverse straddle
Zero cost* collar
Box spread strategy
*CFA only covers a collar where premium earned = premium paid = zero cost. This means we can ignore call and put premiums.
We think price will Purpose Strategy
Be unchanged Generate income Buy underlying, write call
Fall Portfolio insurance Buy underlying, buy put
Rise slightly Benefit from small amount of Buy call (low exercise price), write call (higher
upside exercise price)
Fall slightly Benefit from small amount of Buy call (high exercise price), write call (lower
downside exercise price)
Fall slightly Benefit from small amount of Buy put (high exercise price), write put (lower
downside exercise price)
Fall or rise but Bet on low volatility Buy one call (high exercise price), buy second call
won’t be too (low exercise price), write two calls (medium
volatile exercise price)
Fall or rise but Bet on low volatility Buy one put (high exercise price), buy second put
won’t be too (low exercise price), write two puts (medium
volatile exercise price)
Fall or rise sharply Bet on high volatility without Buy call and buy put with same exercise price
predicting which way the
volatility will be (up or down)
Be unchanged Bet on low volatility, generate Write call and write put with same exercise price
income
Irrelevant - we Lock in current portfolio value Buy underlying, write call, buy put ideally with put
want to lock in strike less than call strike
current portfolio (Covered call + protective put)
value
Irrelevant - we Earn risk free rate regardless of Buy call (low exercise price), write call (high
want to earn risk what end underlying price is exercise price), write put (low exercise price), buy
free rate put (high exercise price)
(Bull spread with calls+ bear spread with puts)