12
OPTIONS – FROM BUILDING BLOCKS TO PORTFOLIOS
12.1 The building block approach
12.2 Option spreads – vertical, horizontal and diagonal
One of the main reasons why options have enjoyed such extraordinary growth since the 1980s is their tremendous versatility – options can be assembled in myriad combinations and permutations. As such, they can be thought of as elemental building blocks which can be put together to form a wide range of financial structures. This chapter demonstrates how options can form the basic building blocks for a number of financial structures, and reviews some of the most common option combinations.
12.1 The building block approach
Consider an ...
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