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Option Strategy - Options Trading - Swing Trading 201

The closer the call options strike price to the current market price of the stock the greater the level of protection against a price increase, but the greater protection comes at a higher cost. 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. An in-the-money option not only has extrinsic value butalso some intrinsic value. Buy out of the money put options: This affords lower cost and more leverage; however, a larger move in the stock price will be required to exercise.Buy in the money put options: This provides a better chance of making a profit but more dollars will be at risk since you must pay a greater premium. They can buy different amounts of Calls and Puts with different Strike Prices or Expiration Dates, modifying the Straddles to suit their individual strategies and risk tolerance. If the price of the stock hovers around the initial price, both the Call and the Put will not be that much In-The-Money. When is it used?Call option writing is used by investors to generate additional income. The options will be identical except for the strike price (use same expiration, same stock). There are a couple of approaches to the market that are popular across many systems. There is news that a legal suit against XYZ will conclude tomorrow. For this strategy an investor will normally have a neutral to bullish market forecast. The re-initiation of theposition every month is where the term rolling comes from.However, there may be times when you may want to give yourself alittle more upside room for capital appreciation. One method of predicting volatility is by using the Technical Indicator called Bollinger Bands. 1) Short Straddle: This strategy is implemented by simultaneously writing a put and a call option on the same stock with the same strike price and the same expiration date. 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. Discover how to protect your investments step-by-step video tutorials, articles, free and premium trading content which can be found at: These pieces of data can consist of charts, indicators, oscillators, fundamental analysis, news or even tips. Note that there are various forms of straddles, but we will only be covering the basic straddle strategy. An investor is willing to accept a large amount of risk in exchange for the stock option premium received. For example: write the XYZ June 30 Put and also write the XYZ June 30 call. If you had bough 3 shares your profit would be ($550-500)*3 = $150. Finally, if you intend to use the buy-write strategysuccessfully, you generally need to sell the calls against yourstock on a consistent, recurring interval, over a period oftime. The second month option will be sold short thus re-initiatingyour covered call strategy. Long Straddle: This strategy is the opposite of the Short Straddle; an investor will simultaneously buy a call option and a put option on the same stock with the same strike price and same expiration date. Another approach is to take your profits after a certain percentage of gain, and occasionally put up with a medium sized loss. Strike price is the price where an underlying stock can be purchased. You buy September 500 Calls for $16 (you have $1000 so you can afford 1 contract (sold in 100 board lots). Short Straddle: This strategy is implemented by simultaneously writing a put and a call option on the same stock with the same strike price and the same expiration date. Now, the most money you can loose over the month is the $1 you paid for the put while you still can participate in any upside so as long as the Starbucks (SBUX) is trading above $26 at expiration you have made a profit. No matter the result of the suit, you know that there will be volatility. Long Straddle: This strategy is the opposite of the Short Straddle; an investor will simultaneously buy a call option and a put option on the same stock with the same strike price and same expiration date. On the other hand, it's relatively easier to predict whether a stock is going to move (without knowing whether the move is up or down). And remember - it's always good to start with pretend trades to get the hang on things, before you commit your life savings to the market. If Straddles are so good, why doesn't everybody use them for every investment?.

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