---
title: C14 TRADING STRATEGIES
description: "## COVERED CALLS & PROTECTIVE PUTS - **COVERED CALLS:** Sell a call option on a stock owned by the option writer. **Use:**To generate cash on a stock that is not expected to increase above the exercise price. - **PROTECTIVE PUTS:**…"
url: "https://falconedufin.com/book/%25knowledge_base%25/book-3-fmp/c14-trading-strategies/"
updated: "2022-08-31"
category: Book 3 FMP
---

# C14 TRADING STRATEGIES

## COVERED CALLS & PROTECTIVE PUTS

- **COVERED CALLS:** Sell a call option on a stock owned by the option writer.

**Use:**To generate cash on a stock that is not expected to increase above the exercise price.

- **PROTECTIVE PUTS:** Constructed by holding a long position in the underlying security and buying a put option.

**Use:**limit the downside risk at the cost of the put premium

## SPREAD STRATEGIES

- **BULL & BEAR SPREADS:**

![](https://falconedufin.com/wp-content/uploads/2021/05/Picture16-300x207.png)

- **BUTTERFLY SPREAD:**

![](https://falconedufin.com/wp-content/uploads/2021/05/Picture17-300x111.png)

- **CALENDER SPREAD:** Sell short dated option & buy long dated option with same strike price.

![](https://falconedufin.com/wp-content/uploads/2021/05/Picture18-300x127.png)

## COMBINATION STRATEGIES

 

## ![](https://falconedufin.com/wp-content/uploads/2021/05/Picture19-300x259.png)

 

- **STRIPS & STRAPS**

**![](https://falconedufin.com/wp-content/uploads/2021/05/Picture20-300x193.png)![](https://falconedufin.com/wp-content/uploads/2021/05/Picture21-300x174.png)**

- ** COLLAR:  Combination of protective put & covered call.**

## INTEREST RATE CAPS & FLOORS

- **INTEREST RATE CAP:**One party agrees to pay the other at regular interval, when the benchmark interest rate ( ex– LIBOR) exceeds the **cap rate**(strike rate) specified in the contract.
- **INTEREST RATE FLOOR:**One party agrees to pay the other at regular interval, when the benchmark interest rate ( ex– LIBOR) falls below the **floor rate**(strike rate) specified in the contract.
- **INTEREST RATE COLLAR:**Simultaneous position in a floor and a cap on the same benchmark rate over the same period with the same settlement date.

                                     Purchase cap & sell a floor         

Purchase a floor & sell a cap

- **Zero cost collar:** Premium paid for buying the cap is equal to premium received from selling the floor.