Could you capitalize trading with common options strategies used by the pros?
We found a good primer on basic options trading strategies that every options investor should know. The article gives a brief explanation and an example of how the strategy works.
First up is the long call, where you buy a call option betting that the price per share of the underlying stock will exceed the strike price. The risk is the loss of the premium (cost of the option) if the stock price does not exceed the strike price before the option expires.
The flip side of the long call is the long put, a bet that the price per share of the underlying stock will fall below the stock price. The risk is the loss of the premium (cost of the option) if the stock price exceeds the strike price before the option expires.
Similar to the long call is the short put, a bet that the price per share of the underlying stock will be flat or rise before expiration. This is a sale of the option with the hope that the trader keeps the premium. If the stock sits below the strike price at expiration, the put seller is forced to buy the stock at the strike, realizing a loss.
The covered call is when the trader owns the underlying stock and sells a call, betting that the stock will stay flat or go down slightly, allowing the trader to keep the premium. The stock’s upside is capped with a potential total loss of the stock’s value other than the premium.
The married put combines a long put with owning the underlying stock, allowing the trader to own the stock for appreciation with a hedge for a price drop.
We recommend reading the article in detail. It has a lot of great information.
Finding the best options trading opportunities means recognizing and understanding a good setup situation and a situation to avoid.
For many investors, it is very easy to get caught up in the excitement of finding a trade from the news or the Internet. It is also very easy to believe you are on top of the news and markets from reading the Business and Markets sections of the newspaper or reading the latest and greatest on the Internet.
However, these opportunities are probably gone by the time you read about it.
As a result, the right education, strategies and practice is necessary to act on the right trades as the right time.