
1. Risk Parameters of Debit and Credit Spreads

Debit Call Spread (Bullish) 
Debit Put Spread (Bearish) 
Credit Call Spread (Bearish) 
Credit Put Spread (Bullish) 
Description 
Buy call with low strike price, sell call with high strike price. 
Buy put with higher strike price, sell put with lower strike price. 
Buy call with high strike price, sell call with low strike price. 
Buy put with low strike price, sell put with high strike price. 
Maximum Gain 
Futures price equals or exceeds strike price of higher option (in the money) 
Futures price equals or is less than put with lower strike price. (in the money) 
Net premium received 
Net premium received. 
Maximum Loss 
Net premium (futures prices drops below lower option\'s strike price) 
Net premium (futures equals or exceeds strike price of higher option) 
Strike price –net premium (Futures contract exceeds higher strike price) 
Strike pricenet premium 
Break Even 
Lower strike price + net premium 
Strike price –net premium. 
Lower strike price + net premium. 
Higher strike pricenet premium received. 
Profitability 
Premium difference widens. 
Premium difference widens. 
Premium difference narrows 
Premium difference narrows 
Other Strategies
Combinations: Akin to straddles but the strike prices and/or expiration dates.
Long  Call and put purchased on same futures contract with different
Short  Call and put sold on same futures contract with different strike prices and/or expiration dates.
2. Risk Parameters of Straddles
As distinct from spreads where an investor articulates a view on the direction of the market (bullish or bearish), the use of straddles signals a certain degree of ambivalence as the trader is unsure of the market's direction and wants to plan for multiple outcomes.

Long Straddle 
Short Straddle 
Description 
Purchase of a Call and a Put on the same underlying commodity, expiration month and strike price. 
Sale of a Call and a Put on the same underlying commodity, expiration month and strike price. 
Maximum Gain 
Unlimited 
Initial premia received. 
Maximum Loss 
The premia 
Unlimited (the short call) 
Breakeven 
Two pointsone above and one below the strike price. Market price=strike price+/total premia paid 
Two pointsone above and one below the strike price. Market price=strike price+/total premia paid 
3. Risk Parameters of Strangles
Similar to a straddle, strangles use different strike prices. Both options are out of the money, requiring more considerable price movement to reach or exceed breakeven. Because both positions are out of the money, this strategy is less expensive.

Long Strangle 
Short Strangle 
Description 
Purchase both a put and a call. Both are out of the money 
Sell a put and a call. Both are out of the money. 
Maximum Gain 
Unlimited 
Premia received 
Maximum Loss 
Premia paid 
Unlimited 
Breakeven 
Call strike price + premium Put strike price  premium 
Call strike price + premium Put strike price  premium 
LOOK OUT!
Calculating return on equity:
For options is done the same was as it is done for futures: (gross profit – amount invested) / amount invested
LOOK OUT!
The covered call, which is equivalent to the protypical futures hedge long future, short spot), will likely be on the Series 3 exam. The rest of the covered/uncovered call/put discussion is just for your background
LOOK OUT!
This will probably be on the Series 3 exam: In a call bull spread or a put bear spread, the investor benefits when the basis widens; in a call bear spread or a put bull spread, the investor benefits when the basis narrows.
Summary And Review

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