Two Kinds of Underlying Assets · Investment assets: held for investment purposes by a significant numbers of investors. Examples: stocks, bonds, gold. Three different situations: 1. The asset provides no income 2. The asset provides a known dollar income 3. The asset provides a known dividend yield Consumption assets: held primarily for consumption. Examples: commodities such as copper, oil and live hogs
Three Alternative Strategies · Take position in: -the option and the underlying -2 or more options of the same type This is known as spread -a mixture of calls and puts This is known as a combination