APPENDIX 1
Option strategies
Introduction
This section covers a wide range of commonly used option strategies. They are categorised by the trade motivation into:
- Directional trades
- Volatility trades
- Arbitrage strategies.
Directional trades are entered into by investors with a definite view of the direction the market is likely to take. Bullish traders use strategies that exploit a rising market, whilst bearish traders expect the market to decline.
Volatility trades are utilised by investors with no view on market direction, but an expectation of fluctuations. Trading strategies are chosen depending on how large the fluctuations are anticipated to be.
Arbitrage trades exploit the price discrepancies between the options and the underlying ...
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