| |
| | | Over the past couple of weeks, we've talked about the basics of Options Trading. By now, we all know that options sellers are called writers and options buyers are called holders, as well as call options give the trader a right to buy while put options give the trader the right to sell. Now, we're ready to look at three common trading options strategies. | | Covered Calls | | One very popular strategy when trading options is to structure a covered call. This strategy allows traders to sell a call for, more or less, the amount of the asset. | | In example, let's say you are have a stock for $25, but you are not sure if the value will go up or stay the same. So, you sell an options call that the stock price will go up to $27, at a $0.75 premium per share. Someone buys a contract for 100 shares, or $75. If the price stays at, or falls below, $25 the option will be worthless to the buyer, but the seller would gain $75 from the contract. | | If the price hits $27, or goes above, the option is exercised and the buyer receives 100 shares of stock at $27 each. The seller receives $27.75 per stock. If the price of the stock is higher than $27.75, it would have been better for the call writer to hold the stock, but if they were going to sell at $27 anyway, then the writer gained an extra $0.75 per share. | | Naked Calls | | A naked call is an options strategy in which an investor writes call options on the open market without owning the asset. | | Let's say you choose a stock priced at $60. You write an option where the strike price is set for $62 and you set a premium of $0.50. If the price falls below $62, then you profit off the $0.50 you set and you don't need to buy any stock. Now if the price goes to $67, the contract will be exercised and now you have to go buy the stock to sell them to the contract buyer and your loss will be the extra $5 value of the stock, minus the $0.50 profit from your premium. This will equate to a loss of $4.50. | | There is a significant risk of loss with writing naked calls. However, the upside to the strategy is that the investor could receive income from the premiums without putting up a lot of initial capital. | | Married Put | | In this options strategy, an investor purchases an asset and simultaneously purchases put options for an equivalent number of shares. Each contract is generally worth 100 shares and the holder of a put options has the right to sell stock at the strike price. | | Investors like this strategy because it's one way to protect their downside risk when holding a stock. | | | | | | |
| |
| | | Tips4Traders | | For more awesome tips, news and information, visit our site...
Register now | | | | |
This email was sent to phanhoa1821960.trader@blogger.com by Tips4Traders
No comments:
Post a Comment