Shreya Patel

Bullish Bearish
Buy Call/ Sell Put Sell Call/Buy Put
Call IV rising; Put IV falling Call IV falling; Put IV rising
Check IV chart Check IV chart

Bullish: - Buy Call; Sell Put

Bearish: - Buy Put; Sell

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STRATEGIES

1) Straddle Long

 Straddle Long: Buy ATM Call and Put, Same Strike & Expiry

 Explanation: A trader buys a long call and a long put on the same underlying asset. Both
options have the same expiration date and strike price. The goal is to profit from a strong
move in either direction by the underlying asset following a market event, such as earnings
reports, Federal Reserve or RBI actions, or significant news.

 You create a long straddle when you combine both the long call and long put positions. This
strategy aims to profit from a large move in either direction, regardless of market direction.
The combined cost of the call and put options defines the maximum risk, while the potential
profit is unlimited beyond the debit paid to enter the trade. Remember that a sharp rise in
implied volatility typically accompanies large moves in stock prices, benefiting the long-
straddle strategy

2) Straddle Short

 Straddle Short: Short ATM Call and Put, Same Strike & Expiry

 Example: Suppose XYZ stock is trading at $50. A trader executes a short straddle by:

o Selling a call option with a strike price of $50 for a premium of $3.

o Selling a put option with a strike price of $50 for a premium of $3.

o The trader collects a total premium of $6 ($3 from the call + $3 from the put).

o Now, let’s look at two possible outcomes at expiration:

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i. XYZ stock price remains at $50:

o Both the call and put options expire worthless.

o The trader keeps the entire premium of $6 as profit.

ii. XYZ stock price moves significantly to $60 or $40:

o If the price goes up to $60, the call option is exercised, and the trader is obligated to sell the
stock at $50, missing out on the extra $10 per share.

o If the price drops to $40, the put option is exercised, and the trader is obligated to buy the
stock at $50, incurring a loss of $10 per share.

 In both cases, the trader’s loss is the difference in stock price movement minus the
premiums received ($10 - $6 = $4 loss per share).

3) Strangle Long

 Strangle Long: Buy OTM Call and Put, Same Expiry

 Both options belong to the same underlying, expiry, strike

 Cheaper than Straddle

 Explanation: -

o Let’s assume the stock of company XYZ is currently trading at ₹500.

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o OTM Call Option: You buy a call option with a strike price of ₹550, above the current market
price, for a premium of ₹30.

o OTM Put Option: You buy a put option with a strike price of ₹450, below the current market
price, for a premium of ₹25.

o The total investment (or maximum risk) in this strategy is the sum of the premiums paid for
both options, which is ₹55 (₹30 + ₹25).

 Profit Scenarios:

o If the stock price rises above ₹605 (strike price of call + total premium paid) at expiration, the
call option is in-the-money, and you can profit from the upside.

o If the stock price falls below ₹395 (strike price of put - total premium paid) at expiration, the
put option is in-the-money, and you can profit from the downside.

 Loss Scenario:

o If the stock price at expiration is between ₹450 and ₹550, both options expire worthless, and
you lose the total premium paid of ₹55.

4) Strangle Short

 Strangle Short: Short OTM Call and Put, Same Expiry

 Explanation: -

o Let’s say you believe the stock ABC, still at ₹100, will not experience much price movement.

o Sell OTM Call Option: Sell a call option with a strike price of ₹110, receiving a premium of ₹5.
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o Sell OTM Put Option: Sell a put option with a strike price of ₹90, receiving a premium of ₹5.

o The total income from selling these options is ₹10 (₹5+₹5). This is your maximum profit.

o Profit if the stock stays between ₹90 and ₹110: Both options expire worthless, and you keep
the premium.

o Loss if the stock goes above ₹120 or below ₹80: If the stock moves significantly, one of the
options will be exercised, potentially leading to unlimited losses.

5) Bull Call Spread

 Bull Call Spread: Buy ATM/ITM Call (directional) and Short OTM (hedge), Same Expiry

 When you buy an ATM/ ITM call option, you’re paying for the right to buy shares of a stock at
a certain price (the strike price) before the option expires. This is like putting down a deposit
to lock in the price of something you want to buy later, hoping its value will increase.

 When you sell an OTM call option, you’re essentially agreeing to sell shares of the stock at a
certain price (the strike price) if the stock’s price goes up to that level before the option
expires. In return for this agreement, you receive money right away, which is called the
premium.

 In the Bull Call Spread, selling the OTM call option helps you lower the overall cost of the
strategy because you’re collecting the premium from the sale. However, it also caps your
maximum profit. If the stock price goes way above the strike price of the OTM call you sold,
you won’t gain any more profit beyond that point because you’ve agreed to sell the stock at
the strike price of the OTM call.

 It is used when you anticipate bullishness in the market.

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6) Bull Put Spread

 Bull Put Spread: Short ITM Put and Long OTM Put, Same Expiry

 You sell an ITM or ATM put option. This means you’re agreeing to buy the stock at the strike
price if the stock price falls to or below that level. By selling this put option, you receive a
premium (money) up front. This is beneficial if the stock price stays the same or goes up
because the option you sold will expire worthless, and you keep the premium.

 You buy an OTM put option with a lower strike price than the one you sold. This costs you a
premium, but it’s usually less than what you received for selling the ITM/ATM put. This is
your insurance. If the stock price falls sharply, your losses are limited because you can sell
the stock at the strike price of the OTM put you bought.

 In short, the selling part is where you make money if the stock price stays flat or rises, and
the buying part is your safety net that limits your losses if the stock price falls. The goal is to
keep the net premium as profit while minimizing potential losses.

 Example:

o You sell an ATM put option with a strike price of $100 and let’s say you receive a premium of
$5. You buy an OTM put option with a strike price of $90, paying a premium of $2.

o Stock price stays above $100: Both options expire worthless. You make a profit of $3 ($5
received - $2 paid).

o Stock price between $90 and $100: The put option you sold may be exercised, and you might
have to buy the stock at $100, but your loss is offset by the premiums.

o Your maximum loss is $7 ($100 - $90 - $3 net premium).

o Stock price below $90: You exercise the put option you bought to sell the stock at $90,
limiting your loss to $7.
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7) Bullish Calendar Spread

 Bullish Calendar Spread: Buy Far-Term ITM Call and Short Near-Term OTM Call

 The longer-term option benefits from higher Vega (changes in volatility).

 Time decay works in your favour.

 Example: - Let’s say stock ABC is trading at $100, and you are moderately bullish on the stock
over the next few months.

o Buy Far-Term ITM Call: You buy a 3-month ITM call option with a strike price of $95 (since
the stock is trading at $100, this strike price is ITM) for a premium of $10.

o Sell Near-Term OTM Call: You sell a 1-month OTM call option with a strike price of $105 for a
premium of $2.

o The net cost (debit) of entering this spread is $8 ($10 paid for the long call - $2 received for
the short call).

o Now, let’s consider the stock price at the 1-month expiration:

a) If ABC is still around $100, the short-term OTM call expires worthless, and you keep the $2
premium.

b) The long-term ITM call still has value due to its intrinsic value and the time remaining until its
expiration.

c) If ABC rises above $105 after the first month, the value of the long-term ITM call will
increase, potentially offsetting the cost of the spread or resulting in a profit if the increase is
significant.
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8) Bear Put Spread

 Bear Put Spread: Buy ATM/ITM Put and Short OTM, Same Expiry

 This strategy aims to profit from a decline in the stock price. If the stock price falls below the
strike price of the ITM, you can sell the stock at a higher price than the current market value.
The OTM puts you sold caps your maximum profit but also reduces the overall cost of the
trade. If the stock price doesn’t fall as expected, your maximum loss is limited to the net cost
of the spread—the amount you paid for the ITM put minus the premium received from
selling the OTM put.

 Example: Suppose stock XYZ is trading at $100, and you expect a moderate decline in its
price. You decide to set up a Bear Put Spread by:

o Buying an ATM/ITM Put: You buy a 1-month ATM put option with a strike price of $100
(since the stock is trading at $100, this strike price is ATM) for a premium of $6.

o Selling an OTM Put: You sell a 1-month OTM put option with a strike price of $90 for a
premium of $2.

o The net cost (debit) of entering this spread is $4 ($6 paid for the long put - $2 received for the
short put).

o Now, let’s consider the stock price at expiration:

a) If XYZ drops to $90, the long ATM put is in the money with an intrinsic value of $10 ($100
strike - $90 stock price). The short OTM put is at-the-money and may have minimal value.

b) You can exercise the long put to sell the stock at $100, realizing a profit of $10 per share.

c) After accounting for the net cost of the spread ($4), your net profit is $6 per share ($10 - $4).

d) The maximum profit is realized if XYZ is at or below $90 at expiration.

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e) If XYZ falls only slightly to $98, the long ATM put has an intrinsic value of $2 ($100 strike - $98
stock price). The short OTM put expires worthless.

f) After accounting for the net cost of the spread ($4), you have a net loss of $2 per share ($2 -
$4).

g) If XYZ price rises above $100, both puts expire worthless.

h) You lose the net cost of the spread, which is $4 per share.

9) Bearish Call Spread

 Bearish Call Spread: Short ITM Call and Long OTM Call, Same Expiry

 The Bearish Call Spread aims to profit from a decline in the price of the underlying asset. The
maximum profit is achieved when the price of the underlying asset is at or below the strike
price of the short call option at expiration.

 Example:

o Suppose the underlying asset is currently trading at $100.

o Sell ITM Call Option: Sell a call option with a $95 strike price for a premium of $7.

o Buy OTM Call Option: Buy a call option with a $105 strike price for a premium of $2.

o Net Premium Received: The net premium received is $7 (from the short call) - $2 (for the
long call) = $5.

o Maximum Profit: $5 (net premium received).

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o Maximum Loss: $10 (difference in strike prices) - $5 (net premium received) = $5.

10) Bearish Calendar Spread

 Bearish Calendar Spread: Buy Far-Term ITM Put and Short Near-Term OTM Put

 Example:

o Suppose the underlying asset is currently trading at $100.

o Buy Far-Term ITM Put Option: Buy a put option with a $105 strike price expiring in three
months for a premium of $7.

o Sell Near-Term OTM Put Option: Sell a put option with the same $105 strike price expiring in
one month for a premium of $2.

o Net Premium Paid: The net premium paid is $7 (for the long put) - $2 (for the short put) =
$5.

o Maximum Profit: The maximum profit is realized if the underlying asset is at $105 at the
expiration of the short put option.

o Maximum Loss: The maximum loss is the net premium paid, which is $5.

11) Butterfly Strategy

a) Long Call Butterfly: 2 * Short ATM Call and Long 1 ITM Call & 1 OTM Call

 This strategy is used when you expect the underlying asset’s price to stay around the middle
strike price (the strike price of the ATM options) until expiration.
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 It is expensive.

 Example:

o Suppose the underlying asset is currently trading at $100.

o Buy ITM Call Option: Buy one call option with a $95 strike price for a premium of $8.

o Sell ATM Call Options: Sell two call options with a $100 strike price for a premium of $5 each
(total $10).

o Buy OTM Call Option: Buy one call option with a $105 strike price for a premium of $3.

o Net Premium Paid: The net premium paid is $8 (ITM) + $3 (OTM) - $10 (ATM) = $1.

o Maximum Profit: The maximum profit occurs if the underlying asset is at $100 (the middle
strike price) at expiration. The profit calculation is:

 The ITM call ($95 strike) would be worth $5 ($100 - $95).

 The two ATM calls ($100 strike) would expire worthless.

 The OTM call ($105 strike) would expire worthless.

 Profit = ($5 from ITM call) - ($1 net premium paid) = $4.

 Maximum Loss: The maximum loss is the net premium paid, which is $1.

 Breakeven Points:

 Lower breakeven point = $95 (lower strike) + $1 (net premium) = $96

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 Higher breakeven point = $105 (higher strike) - $1 (net premium) = $104.

b) Short Call Butterfly: 2 * Long ATM Call and Short 1 ITM Call & 1 OTM Call

 The Short Call Butterfly Spread aims to profit from significant price movement in the
underlying asset. This strategy can be profitable if the price moves far enough away from the
middle strike price (ATM options), either up or down.

 Example:

o Suppose the underlying asset is currently trading at $100.

o Sell ITM Call Option: Sell one call option with a $95 strike price for a premium of $8.

o Buy ATM Call Options: Buy two call options with a $100 strike price for a premium of $5 each
(total $10).

o Sell OTM Call Option: Sell one call option with a $105 strike price for a premium of $3.

o Net Premium Received: The net premium received is $8 (ITM) + $3 (OTM) - $10 (2 ATM) =
$1.

o Maximum Profit: The maximum profit occurs if the underlying asset is well below $95 or
well above $105 at expiration.

o If well below $95, the ITM call expires in the money, but the loss is offset by the two ATM
calls which expire worthless, and the OTM call expires worthless.

o If well above $105, the ITM call is offset by the ATM calls which are in the money, and the
OTM call expires in the money.

o In both scenarios, the profit calculation is the net premium received, which is $1.
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o Maximum Loss: The maximum loss occurs if the underlying asset is at $100 at expiration.

 Both ATM calls are in the money, each offsetting the ITM and OTM calls.

 Loss = (Difference in strikes - Net premium received) = ($5 - $1) = $4.

c) Long Put Butterfly: 2 * Short ATM Put and Long 1 ITM Put & 1 OTM Put

 The Long-Put Butterfly Spread aims to profit from low volatility when the underlying asset’s
price is expected to be close to the middle strike price at expiration. This strategy limits both
potential profit and loss.

 Example:

o Suppose the underlying asset is currently trading at $100.

o Buy ITM Put Option: Buy one put option with a $105 strike price for a premium of $7.

o Sell ATM Put Options: Sell two put options with a $100 strike price for a premium of $3 each
(total $6).

o Buy OTM Put Option: Buy one put option with a $95 strike price for a premium of $1.

o Net Premium Paid: The net premium paid is $7 (ITM) + $1 (OTM) - $6 (2 ATM) = $2.

o Maximum Profit: The maximum profit occurs if the underlying asset is at $100 (the middle
strike price) at expiration. The profit calculation is:

 The ITM put ($105 strike) would be worth $5 ($105 - $100).

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 The two ATM puts ($100 strike) would expire worthless.

 The OTM put ($95 strike) would expire worthless.

 Profit = ($5 from ITM put) - ($2 net premium paid) = $3.

o Maximum Loss: The maximum loss is the net premium paid, which is $2.

d) Short Put Butterfly: 2 * Long ATM Put and Short 1 ITM Put & 1 OTM Put

 The Short Put Butterfly Spread aims to profit from significant price movement in the
underlying asset. This strategy can be profitable if the price moves far enough away from the
middle strike price (ATM options), either up or down.

 Example:

o Suppose the underlying asset is currently trading at $100.

o Sell ITM Put Option: Sell one put option with a $105 strike price for a premium of $8.

o Buy ATM Put Options: Buy two put options with a $100 strike price for a premium of $4 each
(total $8).

o Sell OTM Put Option: Sell one put option with a $95 strike price for a premium of $2.

o Net Premium Received: The net premium received is $8 (ITM) + $2 (OTM) - $8 (2 ATM) = $2.

o Maximum Profit: The maximum profit occurs if the underlying asset is well below $95 or
well above $105 at expiration.

 If well below $95, the ITM put expires in the money, but the loss is offset by the two ATM
puts which expire worthless, and the OTM put expires in the money.
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 If well above $105, the ITM put is offset by the ATM puts which are in the money, and the
OTM put expires worthless.

 In both scenarios, the profit calculation is the net premium received, which is $2.

o Maximum Loss: The maximum loss occurs if the underlying asset is at $100 at expiration.

 Both ATM puts are in the money, each offsetting the ITM and OTM puts.

 Loss = (Difference in strikes - Net premium received) = ($5 - $2) = $3.

12) Iron Condor Strategy

 Iron Condor Strategy: Short OTM Call and Put, Long OTM Call and Put

 This strategy aims to profit from the underlying asset trading within a specific range, thus
benefiting from time decay and lower volatility. The trader collects premiums from the sold
options, hoping the asset price stays between the strike prices of the short options until
expiration.

 It is used when you anticipate the stock price to stay within a specific range and implied
volatility is high (the goal is to keep the stock price within the chosen strike prices, allowing
you to retain the premium received).

 Example:

o Suppose the underlying asset is currently trading at $100.

o Sell OTM Call: Sell a call option with a $105 strike price for a premium of $2.

o Buy Further OTM Call: Buy a call option with a $110 strike price for a premium of $1.
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o Sell OTM Put: Sell a put option with a $95 strike price for a premium of $2.

o Buy Further OTM Put: Buy a put option with a $90 strike price for a premium of $1.

o Net Premium Received: The net premium received is $2 (short call) + $2 (short put) - $1
(long call) - $1 (long put) = $2.

o Maximum Profit: The maximum profit is the net premium of $2.

o Maximum Loss: The maximum loss occurs if the underlying asset is below $90 or above $110
at expiration.

13) Long Synthetic

i. Long Synthetic: Long Call & Short Put, Same Strike and Expiry

ii. Explanation:

a. Long Call: When you buy a call option, you have the right, but not the obligation, to purchase
the underlying stock at the strike price before the option expires.

b. Short Put: When you sell a put option, you must buy the underlying stock at the strike price
if the buyer exercises the option.

c. By combining these two positions, you create a scenario where:

 If the stock price increases, the value of the long call increases, and the short put expires
worthless, leading to a profit similar to that of owning the stock.

 If the stock price decreases, the value of the long call decreases (potentially to zero if it
expires out of the money), and you may be obligated to buy the stock at the strike price due
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to the short put. This could lead to a loss, but it’s similar to the loss you would incur if you
owned the stock and its value decreased.

iii. Example: Consider a stock currently trading at $100.

a) Long Call: You buy a call option with a strike price of $100 expiring in one month for a
premium of $5.

b) Short Put: Simultaneously, you sell a put option with the same strike price and expiration for
a premium of $5.

c) Now, let’s look at two scenarios at expiration:

 Stock price rises to $120:

o The call option is in the money and has an intrinsic value of $20 ($120 - $100).

o The put option is out of the money and expires worthless.

o Your profit from the call option is $20 minus the $5 premium paid, so $15.

o Since the put option expires worthless, you keep the $5 premium received.

o Total profit = $15 (from call) + $5 (from put) = $20.

 Stock price drops to $80:

o The call option expires worthless.

o The put option is in the money, and you’re obligated to buy the stock at $100.
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o You effectively purchase the stock for $100 and it’s worth $80, so you have an unrealized loss
of $20.

o However, you received a $5 premium for the put option, reducing the loss to $15.

o Total loss = $20 (from stock) - $5 (from put) = $15.

o In both scenarios, the premiums cancel each other out, and you’re left with the profit or loss
from the stock price movement, which is the essence of a long synthetic position.

14) Short Synthetic

i. Short Synthetic: Short Call & Long Put, Same Strike and Expiry

ii. Explanation:

a) Short Call: When you sell a call option, you must sell the underlying stock at the strike price if
the buyer exercises the option.

b) Long Put: When you buy a put option, you have the right, but not the obligation, to sell the
underlying stock at the strike price before the option expires.

c) By combining these two positions, you create a scenario where:

d) If the stock price decreases, the value of the long-put increases, and the short call expires
worthless, leading to a profit similar to that of shorting the stock.

e) If the stock price increases, the value of the long-put decreases (potentially to zero if it
expires out of the money), and you may be obligated to sell the stock at the strike price due
to the short call. This could lead to a loss, but it’s similar to the loss you would incur if you
had shorted the stock and its value increased.

iii. Example: - Suppose a stock is trading at $50.

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a) Short Call: You sell a call option with a strike price of $50 for a premium of $3.

b) Long Put: You buy a put option with the same strike price for a premium of $3.

c) Now, let’s consider the stock price at expiration:

 Stock price falls to $40:

o The long put is in the money, with an intrinsic value of $10 ($50 - $40).

o The short call expires worthless.

o Profit from the put option is $10 - $3 (premium paid) = $7.

o You keep the $3 premium from the short call.

o Total profit = $7 (from put) + $3 (from call) = $10.

 Stock price rises to $60:

o The short call is in the money, and you may have to sell the stock at $50.

o The long put expires worthless.

o Loss from the call option is $10 ($60 - $50) + $3 (premium paid for the put) = $13.

o You keep the $3 premium from the short call.

o Total loss = $13 (from call) - $3 (from call premium) = $10.

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o In both scenarios, the premiums cancel each other out, and you’re left with the profit or loss
from the stock price movement, which is the essence of a short synthetic position.

15) Covered Call

i. Covered Call: Long Equity and Short Call

ii. A Covered Call is an options strategy where an investor holds a long position in a stock (Long
Equity) and sells (writes) call options on the same stock (Short Call).

iii. The primary goal of this strategy is to generate income from the premiums received for
selling the calls. It’s a conservative strategy used when the investor expects the stock price
to rise moderately or not at all.

iv. If the stock price remains below the strike price, the call options will expire worthless, and
you keep the premium as profit. However, if the stock price rises above the strike price, the
call options may be exercised, and you’ll have to sell the stock at the strike price, potentially
missing out on further gains.

v. Example: Suppose you own 100 shares of XYZ stock, currently trading at $50 per share. You
decide to write a covered call by selling 1 call option (equivalent to 100 shares) with a strike
price of $55, expiring in one month, for a premium of $2 per share.

 Scenario 1: Stock price remains at $50 at expiration

o The call option expires worthless.

o You keep the premium of $200 ($2 x 100 shares).

o Your profit is the premium received.

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 Scenario 2: Stock price rises to $60 at expiration

o The call option is exercised.

o You sell your shares at the strike price of $55.

o You keep the premium of $200, plus the $500 gain from selling the stock ($55 - $50 x 100
shares).

o Your profit is the premium plus the gain from selling the stock, but you miss out on the
additional $500 that you would have gained if you sold the stock at the market price of $60.

 Scenario 3: Stock price drops to $45 at expiration

o The call option expires worthless.

o You still own the stock, which has decreased in value by $500 ($50 - $45 x 100 shares).

o The premium of $200 partially offsets the loss.

o Your net loss is $300 ($500 loss on the stock - $200 premium).

vi. The covered call strategy is beneficial for investors looking to generate income from their
stock holdings, especially in flat or slightly bullish markets.

16) Protective Put

i. Protective Put: Long Equity and Long Put

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ii. A Protective Put is an investment strategy that allows an investor to hedge against potential
losses in their stock holdings. This strategy involves owning the underlying stock (Long
Equity) and simultaneously buying a put option for the same stock (Long Put).

iii. The put option acts as insurance, providing the right to sell the stock at a predetermined
price (the strike price), regardless of how low the market price of the stock may fall.

iv. The protective put limits the potential loss to the difference between the stock purchase
price and the strike price of the put, plus the premium paid for the put option. The upside
potential remains unlimited.

v. Example: Imagine you own 100 shares of a company called ABC, which are currently trading
at $100 each. To protect your investment, you buy a 1-month put option with a strike price
of $95 for a premium of $2 per share.

 Scenario 1: Stock price drops to $90 at expiration

o The put option is in the money, and you can sell your shares at the strike price of $95.

o Your loss on the shares is $5 per share ($100 - $95), but the put option offsets this loss.

o The cost of the put option is $2 per share, so your net loss is $7 per share ($5 loss on the
shares + $2 premium for the put).

 Scenario 2: Stock price rises to $110 at expiration

o The put option expires worthless.

o Your shares have increased in value by $10 per share ($110 - $100).

o The cost of the put option is $2 per share, so your net gain is $8 per share ($10 gain on the
shares - $2 premium for the put).
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vi. In both scenarios, the protective put provides a safety net against significant losses while
allowing for upside gains. It’s a prudent strategy for investors who are bullish on a stock in
the long term but are concerned about short-term volatility or downside risk.

17) Delta Neutral Strategy

i. Delta Neutral Strategy: Long Equity / 2 * Long ATM Put

ii. This is done to protect against downside risk while allowing for profit if the stock price
increases.

iii. A Delta Neutral Strategy is an options trading strategy that aims to offset the directional risk
of a position in the underlying asset. In this strategy, the delta of the portfolio is adjusted
to be close to zero, meaning that small changes in the price of the underlying asset will
have little to no impact on the value of the portfolio.

iv. The goal of this strategy is to be delta-neutral, meaning the overall delta of the position is
zero or close to it. The delta of the long stock is +1 per share, and the delta of the ATM put
is typically around -0.5 per share. By buying twice as many puts as the number of shares you
own, you aim to balance the positive delta of the stock with the negative delta of the puts,
creating a delta-neutral position.

v. Example:

 You own 100 shares of XYZ stock, currently trading at $100 per share.

 You buy 2 ATM put options (each option represents 100 shares) with a strike price of $100,
expiring in one month, for a premium of $5 per option.

 Let’s consider the stock price at expiration:

o If the stock price remains at $100, both put options expire worthless. You will lose the
premium paid for the puts ($10 total), but your stock position remains unchanged.
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o If the stock price falls to $90, each put option will have an intrinsic value of $10 ($100 strike -
$90 stock price). Since you have 2 puts, you can sell 200 shares at the strike price, effectively
covering the loss in your stock position and making a profit from the puts.

o If the stock price rises to $110, the put options expire worthless, and you lose the premium
paid. However, your stock position has gained $10 per share, resulting in a net gain even
after accounting for the cost of the puts.