Basic Options Strategies: Rapid Fire
Chapters in this video
- 0:00 Protective puts: the only full hedge for long stock
- 1:03 The four single-option positions and defined risk
- 2:42 Covered call: income generation, capped upside
- 2:57 Covered put: the unlimited loss trap
- 3:59 Foreign currency hedging: receive puts, pay calls
- 4:30 Yield-based options and rising rate hedges
- 5:05 Index puts, contract multipliers, and key numbers
- 6:35 Break-even formulas: calls add, puts subtract
- 7:05 Exercise mechanics, settlement styles, and early assignment
- 8:23 Rapid-fire exam recap
What this video covers
- Why buying an option is a full hedge with defined loss, while selling an option is only a partial hedge equal to the premium received
- How to construct a protective put as the only basic full hedge for long stock, and why a covered call caps upside but merely cushions downside
- The covered put trap: why short stock plus short put creates unlimited maximum loss, not safety
- When to buy puts versus calls for foreign currency hedging, and why yield-based options reverse normal bond hedging logic
- How to calculate single-option break-evens: calls add the premium to strike, puts subtract the premium from strike
- Why index options hedge systematic risk only, and the settlement differences between cash-settled European index options and physically settled American equity options
- Early assignment risk on covered calls near ex-dividend dates, and why the strike price (not market price) controls the exercised transaction
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