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These will contain less option premium for writing the options but it is much less risky because the stock price will have to increase considerable for the option to be exercisable. B) The shares fall - the option expires worthless, you keep the premium, and the option outperform the stock again. If youare no longer bullish then you would not have bought back yourshort call and instead allowed it to be exercised and have thestock called away from you. As long as Google (GOOG) Trades at $516 at expiration in September you have made a profit. Most of the success that comes with trading comes from one source - and it's not the perfect trading system. The directional play is a good place to start our discussion of option strategies. In this case, by using the strategy you have successfully outperformed the stock by using the option. A put option is in-the-money when the share price is below the strike price. Say you only write 1 contract, you will receive $600. When an investor contemplates any option strategy, he or she should always be mindful of the risks, since trading options is a bit more risky than simple stocks. Self discipline, confidence, the ability to see the bigger picture, accepting losses as part of the game, controlling your fear and greed - all of these elements work together to make you a successful trader. This can be time consuming, but at least you can then make a logical comparison of the choices and decide which one has worked best for you. Discover how to protect yourinvestments with the leveraged power of options. So an option expiring this month will have a cheaper premium than an option with the same strike price expiring next year. However, if we had sold the 30 calls for$.30 then we would have another outcome. There are four types of participants in options markets: Buyers of calls, Sellers of calls, Buyers of puts and Sellers of puts. Under the proper conditions, options do not have to be paired with stock or another option to be an effective trading tool. The proper strategy will be the strategy thay allows for the highest possible return with the least amount of risk and the best possible protection that can be afforded. The directional play is a good place to start our discussion of option strategies. For more options strategy and Charts visually representing when each strategy should be used and what the potential risks and rewards are please visit my blog. Instead of buying the shares you decide to buy call options on Google (GOOG). You buy puts with a strike of $25 1 month to expiration for say $1. The wrong strategy even when applied to the right opportunity can increase risk, decrease profits and even create a potential loss. Say Apple (AAPL) is trading at $120 and you are going to be conservative and write put options with a strike price at the money ($120). You bought the stock at$27.00 and sold the 30 calls for $.30 and the stock goes to$29.50. You bought the stock at$27.00 and sold the 30 calls for $.30 and the stock goes to$29.50. A put option is in-the-money when the share price is below the strike price. There is news that a legal suit against XYZ will conclude tomorrow. 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. Fundamentally, the call writer will profit when the stock price remains at or below the strike price as the call will expire worthless while the investor keeps the premium. You can short 100 shares at $25 a piece for $2500 and want to protect yourself against a rise in the stocks price so you buy calls on Starbucks (SBUX) right at the money because you are conservative. The $65 Put is now Way-Out-Of-The-Money and its premium is now $0.25. This tends to work as the time value component of an options value usually erodes faster the shorter the term to expiration. If you buy puts and are conservative you could write at the money $500 puts for one month out for say $15.
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