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Stock Option Strategy - Stock Call Options - Options Trading Online 597

Posted By: optionstradingdomain | Posted On: 2008-08-17 | Article ID: 85991

When to use a Long Combination: An investor feels a stock will make a large price move but is unsure of the direction.For example: buy XYZ June 20 Puts and buy XYZ June 30 Calls. As long as the Apple Shares remain above (110 3 2 = $105) and below (130 + 3 + 2 = $135) you have made a profit. Short Combination (Short Strangle): This strategy is similar to the Short Straddle as you write a call and a put option; however, the difference is that with a short combination you use different strike prices. This way, as long as the stock price remains somewhat stable you will profit. Some stocks will move depending on which candidate wins and you decide to focus on Starbucks (SBUX). The greater the bearishness of an investors forecast, the deeper in the money and further apart the strike prices should be. This strategy is used when an investor is moderately bearish on a stock (the bearish equivalent of the Bull Call Spread). If you bought the Call Options your profit would be {(550-500)-16}*100 = $3400. Self discipline, confidence, the ability to see the bigger picture, accepting losses as part of the game, controlling your fear and greed - all of these elements work together to make you a successful trader. This provides you with the option premium while your maximum risk is strike price of the option minus the premium received. Long (buy), where you do long call in bullish condition and long put in bearish condition. As an example, say your stock is trading at $29.00 and you feelthat your stock may trade down a little but still remain in anuptrend cycle. If a stocks price rises above the strike price of the call option the investor will exercise the right to buy the stock. Sometimes, you may even want toallow the stock to be called away if you have decided that thestock has reached a level were you want to take your profits andbegin to look for another opportunity. Picking an expiration month with a long enough duration for the stock price decrease to occur. Discover how to protect your investments step-by-step video tutorials, articles, free and premium trading content which can be found at: If a stocks price rises above the strike price of the call option the investor will exercise the right to buy the stock. In this case, by using the strategy you have successfully outperformed the stock by using the option. In those rarecases, you will not want to roll the position, because itmight be called away if the call you sold is exercised when itbecomes in the money. Essentially, the covered put writer is foregoing the right to participate in the depreciation of the stock below the strike price in exchange for receiving the put option premium. For example: write the XYZ June 30 Put and also write the XYZ June 30 call. There are two types of option contracts - Call options and Put options. Say you have $1500, you would be able to cover shorting 3 shares. Options prices are dependent upon the prices of their underlying instruments and can be used in various combinations for virtually unlimited market moves. An investor wants some limited upside protection from purchasing the higher strike price put option. XYZ won the legal battle! Investors are more confident of the stock and the price jumps to $72. For example, we would initiate a Straddle for company ABC by buying a June $20 Call as well as a June $20 Put.

 

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