Fri. Jan 27th, 2023

Option Trading Strategies

Option Trading Strategies
Four Option trading strategies

1. Covered call writing. Using stock or buy new shares, you sell someone else a call option that allows the buyer the right to buy your stock at a specified price You collect a cash premium to keep. That cash lessen your cost. Thus, if the stock declines in price, you may suffer a loss, but you are better off than if you merely owned the shares.

2. Cash-secured naked put writing. In this strategy, sell a put option on a stock you want to possess, opting a strike price representing the price you are willing to pay for stock. You may not buy the stock, but if you do not buy, you keep the premium as a consolation. If you keep enough cash to buy the shares then you are treated to be ‘cash-secured.

3. Collar. A collar strategy is a covered call position, with the accumulation of a put. The put acts as an assurance policy and limit losses to a minimal and adjustable amount. Profits are also limited, but passionate investors find that it is a good trade-off to limit profits in return for limited losses.

4. Credit spread. Credit spread is defined as The purchase of one call option, and the sale of the other. Or the purchase of one put option, and the sale of another. Both have the same expiration. It is called a credit spread because the investor accumulates cash for the trade. Thus, the higher priced option is sold, and a less expensive. This strategy has a market bias with limited profits and limited losses.