If you’re in the options business, you know all about making a good deal and taking profits. Using your risk capital to grow your portfolio through options trading can be both stressful and successful; it all depends on exhibiting proper option strategies.
The market can be tricky and volatile, but will you hedge to get ahead? It’s important to utilize time tested and well-qualified option strategies to make the most of your options. Depending on individual positions, the market’s fluctuations will either work to your advantage or detriment.
How will you be on the right side of the equation when the time is right? It all depends on your comprehensive option strategies. Are you looking to exercise your option or trade it before expiration? Also, which type of option are you looking to buy here? In this article, we will discuss the pros and cons of calls and puts, leaving you to decide which one best fits your investment proclivities.
A Call
With a call strategy, you purchase the privilege but not the obligation to purchase the underlying asset at the strike price at any time prior to the expiration date. You can also if you please, sell the call option on the market and make money if its value provides practicality to this method.
Call options often appear in such forms as: Company Month $(strike price.) For example: XYZ March 45. To break it down, this call provides you the option to purchase 100 shares of the XYZ company stock for $45 per share at any point prior to Saturday following the third Friday in March.
You have no obligation to exercise this option, and you may let it expire. However, your premium will not be refunded and you will have lost that money. You can also choose to trade a valuable call back into the market. These instruments are a great strategy for a bullish economy under which you predict asset prices will rise enough to justify the initial principal investment.
A Put
A put investment strategy is fairly symmetrical to that of a call focused plan. With put options, you secure the privilege but not obligation to sell an underlying asset at its strike price prior to an expiration date. The tools and terminology are generally the same, but the side of the equation you are on is decidedly opposite.
Using the same company, stock price, and expiration date of XYZ March 45, you can instead agree to sell somebody that underlying asset at that price per share. This usually makes for a good bearish strategy that predicts a declination in an asset’s value before a particular date, and premium prices are still at play.
You can easily make a profit off of this kind of scheme, but you can also lose principal in much the same way. Also, trading puts on the market is another viable alternative to exercising the option or letting it expire.Your option strategies should hinge, ultimately, on what your particular investment preferences are and your risk tolerance.
Option Trading Strategies: Earn a Living Trading Options – Video 1 Part 1
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