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Sigma Capital - Financial Intelligence 101 - Options Lesson
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Click-1   |    Click-2
Bullish
Bearish
Volatile
Flat1  |  Flat 2
Buy Instrument
Stock / Futures Index, Forex,
Commodity etc
Short Sell Instrument
Stock / Futures Index, Forex,
Commodity, etc
Delta Neutral
Butterfly Call
Butterfly Put
Buy Call
Buy Put
For Gapping Market
DB Straddle =
Buy Call + Put ATM
Iron Condor
CR Call Spread +
CR Put Spread
Buy DB Bull Call Spread
Buy DB Bear Put Spread
For Gapping Market
DB Strangle =
Buy Call + Put OTM
CR Strangle
Sell CR Put (Naked)
Sell CR Call (Naked)
  CR Straddle
Sell CR Bull Put Spread
Sell CR Bear Call Spread
Call Back Spread
Call Ratio Spread
Covered Call
Covered Put
Put Back Spread
Put  Ratio Spread
Buy Stock +
Protective Buy Put
Sell Stock +
Protective Buy Call
  Horizontal Spread or
Calendar Spread
Diagonal Spread
    Diagonal Spread
Call Back Spread
Put Back Spread
  Sell CR Call (Naked)
Ratio Put Spread
Ratio Call Spread
  Sell CR Put (Naked)
Collar (see Flat strategy)
Collar (see Flat Strategy)
Collar (see Flat Strategy)
Collar
      Covered Call
      Covered Put
      Sell CR Bull   Put Spread
      Sell CR Bear Call Spread
80% T-Bonds + 10% MM
80% T-Bonds + 10% MM
80% T-Bonds + 10% MM
80% T-Bonds + 10% MM
 
Volatile Strategy
   
DB Long Straddle =
Buy Call & Put (ATM)
  • Buy ATM Call Options (Near the Stock Current Price)
  • Buy ATM Put  Options (Near the Stock Current Price)
Market is Volatile, strong bullish & bearish view from trader. Everyone doesn’t know where the market goes & the chart
is jumping up & down
(Gap Trading). But, we want to enter the market anyway - with small capital but expecting high
profit whether the market is Gapping Up or Down.
How?

  • If we do Buy or Short Sell stock / ETF QQQQ at $30, we have to either use more money or deposit margin money
    more than $3.000  for 100 shares. We don’t want to risk that much. WE can make profit from buying the stock, but
    risky. We can always make profit from Short Sell, but it has greater risk for beginner. We can do Buy Low & Sell
    High. Or Sell high & Buy Low the stock to make profit. To avoid the risk we buy Options > 60 days

  • Buy Call Options Strike 30 @ (1)
  • Buy Put Options Strike 30 @ (1)          -> Tot DB = (2) i.e Max Risk
  • Max Loss   = (2)
  • Max Profit  = Unlimited if stock >32 from Call and Max Profit if stock < 28 from Put
 
Scenario 1
Q is Up from 30 to 40. it’s Up 10.  Note: Our BEP is at 32. (not 31)
We bought Q Call & Put options for $2, our ROI is (10 – 2) / 2 = 400%.
If we buy the stock Q, our ROI is 10/30 = 33% only. But Risky when it goes down.
We can wait the stock to go down again, so we can take more profit from the Put
 
Scenario 2
Q is Down from 30 to 20. it's Down 10. Our BEP is at 28
We bought Q Call & Put options for $2, our ROI is (10 – 2) / 2 = 400%.
If we Shorted the stock Q, our ROI is 10/30 = 33% only. But Risky when it goes up.
If we Shorted the stock Q, our ROI is 10/30 = 33% only. But Risky when it goes up.
The more the stock Q goes     Up    = Bigger ROI Profit for Call Options
The more the stock Q goes   Down = Bigger ROI Profit for Put  Options
 
Initial Stock 30
Expiry Day
Stock = 40
Expiry Day
Stock = 20
Expiry Day
Stock = 32
Expiry Day
Stock = 28
Expiry Day
Stock = 30
Buy Instrument
price now
P/L
price now
P/L
price now
P/L
price now
P/L
price now
P/L
Buy C 30 @
(1)
+10
+9
0
(1)
+2
+1
0
(1)
0
(1)
Buy P 30 @
(1)
0
(1)
+10
+9
0
(1)
+2
+1
0
(1)
  (2)
+10
+8
+10
+8
+2
0
+2
0
0
(2)
Total
DB
Lmt CR
Net P/L
Lmt CR
Net P/L
Lmt CR
Net P/L
Lmt CR
Net P/L
Lmt CR
Net P/L
Total
P/L ->
  +$800
  +$800
  0
  0
  ($200)
ROI
P/DB->
  +400%
  +400%
  BEP
  BEP
   
 
Volatile Strategy
   
Db Long Straddle =
Buy Call & Put (ATM)
  • Un-Limited Profit = if stock >32 and Max Profit if stock <28
  • Limited Loss         =  (2)
Sell Instrument – Profit & Loss Diagram
Market View
Bearish
▬o▬o▬
Bullish
Risk
Safe
▬o▬▬▬
Risky
Profit
Limited
▬▬▬o▬
Unlimited
Time Decay
Friendly
▬▬▬o▬
Enemy
 
 
 
Volatile Strategy
   
DB Long Strangle =
Buy Call & Put (OTM)
  • Buy OTM Call Options (Further UP        from the Stock Current Price)
  • Buy OTM Put  Options (Further DOWN  from the Stock Current Price)
Market is Volatile, strong bullish & bearish view from trader. Everyone doesn’t know where the market goes & the chart
is jumping up & down
(Gap Trading). But, we want to enter the market anyway - with small capital but expecting high
profit whether the
Market is Gapping Up or Down. How?

  • If we do Buy or Short Sell stock / ETF QQQQ at $30, we have to either use more money or deposit margin money
    more than $3.000  for 100 shares. We don’t want to risk that much. WE can make profit from buying the stock, but
    risky. We can always make profit from Short Sell, but it has greater risk for beginner. We can do Buy Low & Sell
    High. Or Sell high & Buy Low the stock to make profit. To avoid the risk we buy Options > 60 days

  • Buy OTM Call Options Strike 32 @ (0.5)
  • Buy OTM Put Options  Strike 28 @ (0.5)          -> Tot DB = (1) i.e Max Risk. Cheaper than Straddle
  • Max Loss   = (1)
  • Max Profit  = Unlimited if stock >33 from Call and Max Profit if stock < 27 from Put
 
Scenario 1
Q is Up from 30 to 40. it’s Up 10.  Note: Our BEP is at 33. (not 32)
We bought Q Call & Put options for $2, our ROI is (8 – 1) / 1 = 700%.
If we buy the stock Q, our ROI is 10/30 = 33% only. But Risky when it goes down.
We can wait the stock to go down again, so we can take more profit from the Put
 
Scenario 2
Q is Down from 30 to 20. it's Down 10. Our BEP is at 27
We bought Q Call & Put options for $1, our ROI is (8 – 1) / 1 = 700%.
If we Shorted the stock Q, our ROI is 10/30 = 33% only. But Risky when it goes up.
If we Shorted the stock Q, our ROI is 10/30 = 33% only. But Risky when it goes up.
The more the stock Q goes     Up    = Bigger ROI Profit for Call Options
The more the stock Q goes   Down = Bigger ROI Profit for Put  Options
 
Initial Stock 30
Expiry Day
Stock = 40
Expiry Day
Stock = 20
Expiry Day
Stock = 33
Expiry Day
Stock = 27
Expiry Day
Stock 27=>$<=33
Buy Instrument
price now
P/L
price now
P/L
price now
P/L
price now
P/L
price now
P/L
Buy C 32 @
(0.5)
+8
+7.5
0
(0.5)
+1
(0.5)
0
(1)
0
(0.5)
Buy P 28 @
(0.5)
0
(0.5)
+8
+7.0
0
(0.5)
+2
+1
0
(0.5)
  (1.0)
+8
+7.0
+8
+7
+1
0
+2
0
0
(1.0)
Total
DB
Lmt CR
Net P/L
Lmt CR
Net P/L
Lmt CR
Net P/L
Lmt CR
Net P/L
Lmt CR
Net P/L
Total
P/L ->
  +$700
  +$700
  0
  0
  ($100)
ROI
P/DB->
  +700%
  +700%
  BEP
  BEP
   
 
Volatile Strategy
   
Db Long Strangle =
Buy Call & Put (OTM)
  • Un-Limited Profit = if stock >33 and Max Profit if stock <27
  • Limited Loss         =  (1)
Sell Instrument – Profit & Loss Diagram
Market View
Bearish
▬o▬o▬
Bullish
Risk
Safe
▬o▬▬▬
Risky
Profit
Limited
▬▬▬o▬
Unlimited
Time Decay
Friendly
▬▬▬o▬
Enemy
 
 
 
Volatile Strategy
   
Call Back Spread =
Sell 1 Call ATM & Buy 2 Call
OTM
  • Sell 1X ATM Call Options (Near the Stock Current Price)
  • Buy 2X OTM Call Options (Further UP  from the Stock Current Price)
Market is Volatile, strong bullish & bearish view from trader. Chart is jumping up & down (Gap Trading). But, we want to
enter the market anyway - with small capital but expecting high profit whether the
Market is Gapping Up or Down. Our
View is Bullish , but we are fine if we are wrong too.
How?. We buy Spread at least 90 Days to allow big movement

  • Buy 2 X OTM Call Options Strike 32 @ (1) X 2 = (2)
  • Sell 1 X ATM  Call Options Strike 30 @               +3    -> Tot CR = +1  
  • Max Loss      = around (150) relative in between 31 and 33
  • Max Profit  1 = +1.                                           ->If stock <30, Profit From Credit = +1
  • Max Profit  2 = Un-Limited Profit, If stock >33
  • BEP 1 = 31  & BEP 2 = 33

  • If we are wrong and the stock goes down   < 31, our profit is only +1
  • If we are right    and the stock goes Up       > 33, our profit is Un-Limited
 
Initial Stock 30
Expiry Day
Stock <= 30
Expiry Day
Stock = 40
Expiry Day
Stock = 31
Expiry Day
Stock = 32
Expiry Day
Stock =33
Call Back Spread
price now
P/L
price now
P/L
price now
P/L
price now
P/L
price now
P/L
B 2*C32@1
(2)
0
(2)
+16
+14
0
(2)
0
(2)
+2
0
S 1*C30@3
+3
0
+3
(10)
(7)
(1)
+2
(2)
+1
(3)
0
  +1.0
0
+1
+6
+7
(1)
0
(2)
(1)
(1)
(1.0)
Total
CR
Lmt DB
Net P/L
Lmt CR
Net P/L
Lmt DB
Net P/L
Lmt DB
Net P/L
Lmt DB
Net P/L
Total
P/L ->
  +$100
  +$700
  0
  ($100)
  0
ROI
P/DB->
          BEP
      BEP
 
Volatile Strategy
& Holiday Strategy
 
Call Back Spread =
Sell 1 Call ATM & Buy 2 Call OTM
  • Un-Limited Profit = if stock >33 and Limited Profit if stock <30
  • Limited Loss         =  (Less than 2)
Call Back Spread – Profit & Loss Diagram
Market View
Bearish
▬▬▬o▬
Bullish
Risk
Safe
▬o▬▬▬
Risky
Profit
Limited
▬▬▬o▬
Unlimited
Time Decay
Friendly
▬▬o▬▬
Enemy
 
 
 
Volatile Strategy
& Holiday Strategy
 
Put Back Spread =
Sell 1 Put ATM & Buy 2 Put OTM
  • Sell 1X ATM Put  Options (Near the Stock Current Price)
  • Buy 2X OTM Put Options (Further DOWN  from the Stock Current Price)
Market is Volatile, strong bullish & bearish view from trader. The chart is jumping up & down (Gap Trading). Enter with
small capital but expecting high profit whether the
Market is Gapping Up or Down. Our View is Bearish , but we are fine if
we are wrong too.
How? We buy options spread at least 90 days to allow big movement

  • Buy 2 X OTM Put Options Strike 28 @ (1) X 2 = (2)
  • Sell 1 X ATM  Put Options Strike 30 @               +3    -> Tot CR = +1  
  • Max Loss      = around (150) relative in between 29 and 27
  • Max Profit  1 = +1.                                           ->If stock <30, Profit From Credit = +1
  • Max Profit  2 = Max Profit, If stock <27 till Zero
  • BEP 1  =  29 & BEP 2  =  27

  • If we Are wrong and the stock goes up       > 29, our profit is only +1
  • If we are right    and the stock goes down  < 27, our profit is max +27 if the stock becomes zero
 
Initial Stock 30
Expiry Day
Stock >= 30
Expiry Day
Stock = 20
Expiry Day
Stock = 29
Expiry Day
Stock = 28
Expiry Day
Stock =27
Put Back Spread
price now
P/L
price now
P/L
price now
P/L
price now
P/L
price now
P/L
B 2*P28@1
(2)
0
(2)
+16
+14
0
(2)
0
(2)
+2
0
S 1*P30@3
+3
0
+3
(10)
(7)
(1)
+2
(2)
+1
(3)
0
  +1.0
0
+1
+6
+7
(1)
0
(2)
(1)
(1)
(1.0)
Total
CR
Lmt DB
Net P/L
Lmt CR
Net P/L
Lmt DB
Net P/L
Lmt DB
Net P/L
Lmt DB
Net P/L
Total
P/L ->
  +$100
  +$700
  0
  ($100)
  0
ROI
P/DB->
          BEP
      BEP
 
Volatile Strategy
   
Put Back Spread =
Sell 1 Put ATM & Buy 2 Put OTM
  • Max Profit = if stock <27 and Limited Profit if stock >30
  • Limited Loss         =  (Less than 2)
Put Back Spread – Profit & Loss Diagram
Market View
Bearish
▬o▬▬▬
Bullish
Risk
Safe
▬o▬▬▬
Risky
Profit
Limited
▬▬▬o▬
Unlimited
Time Decay
Friendly
▬▬o▬▬
Enemy
 
“Trading Futures instruments such as Index, Foreign exchange, Commodity, Bonds, or other high leverage instruments on margin
carries a
high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as
well as for you. Before deciding to invest in these high leverage instruments you should carefully consider your investment objectives,
level of experience, and risk appetite.

The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money
that you cannot afford to lose.
You should be aware of all the trading risks associated with all of these instruments, and seek
advice from an independent financial advisor if you have any doubts.”