The profit achieved is the difference between spot and strike prices, less the premium originally paid by the option. If the stock price at maturity does not appear to be higher than one of the balance sheet points, you can sell the options to try to recover part of your premium. Let’s see what happens if things don’t go as expected, and the stock price remains at $ 100.
The so-called coverage refers to a two-part negotiation strategy for options. Then they have to sell a call about that share and receive a bonus. In a covered call, the investor expects the shares to remain the same price or to drop slightly, pushing the buyer out of the options to terminate his contract. This allows the investor to keep the premium money he has received. This strategy is common among investors hoping to generate share income, while stock prices are about to stagnate. The maximum of the cover call is the premium, or $ 500, if the stock remains at or just below the maturity rate.
Previous strategies required a combination of two different positions or contracts. In a long butterfly diffusion option, an investor will combine both the abull broadcast strategy and the spread spread strategy. Suppose an investor buys 100 shares and buys a put option at the same time.
Here the trader sells a call, but also buys the shares underlying the option, 100 shares for each call sold. Owning the action turns a potentially risky trade, the short call, into a relatively safe trade that can generate revenue. Traders expect the share price to be below the maturity strike price. If the stock ends above the strike price, the owner must sell the stock at the strike price to the buyer of the call.
If the contract is for 100 shares, you would earn $ 1,500 by owning the shares. However, to calculate your total profit, add the $ 1 premium you received per share for selling a purchase option ($ 100 in total). In this case, your total profit for the strategy is $ 1,500 plus $ 100, or $ 1,600. If he had only bought and held 100 shares, the value of his shares would have increased by $ 1,500. A covered call includes selling a purchase option (“short stays”) but with a twist.
If the stock is below the maturity strike price, the seller is forced to purchase the shares during the strike, causing a loss. The maximum drawback playgroup occurs when the action drops to $ 0 per share. In that case, the short sale would lose the strike price x 100 x the number of contracts, or $ 5,000.
I also like to place long, triangular positions when I expect a big move. Best of all, you don’t have in which direction you are and you benefit. As for money when it comes to exchanging illiquid options, the gap between purchase / offer prices will kill your profit even when the operation is underway. A purchase option can also serve as a limited risk loss tool for a short position. In volatile markets, it is recommended for traders and investors to use stops at risky positions.