Future Trading - Option Trading Research - Options Investing 020

This means that at any given moment in time, you might have adifferent opinion of the potential movement of that stock.Knowing this, there is a way to address your present level ofconfidence or lean. C) If shares rise above the strike price - the option is exercised, the option has underperformed the shares. To successfully trade naked options, an investor must realize that certain options will fit certain scenarios and certain options will not. The term roll means to move your position either out to thenext strike or to move your position up or down a strike in thesame month. One method of predicting volatility is by using the Technical Indicator called Bollinger Bands. The second month option will be sold short thus re-initiatingyour covered call strategy. So you might take six little losses, which are more than compensated for by one huge gain. This provides you with protection against an increase in the price of the stock while you can still participate in the decline in the stocks price. 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. To initiate a Straddle, we would buy a Call and Put of a stock with the same expiration date and strike price. You can sell Puts on Apple (AAPL) and received the option premium in exchange for the risk that the stock may decrease in value up to the expiration of the stock options you sell. Covered call, where you Long the underlying asset and short call options. For example, you know that ABC's annual report is coming out this week, but do not know whether they will exceed expectations or not. Say you only want to protect your stock from a decline for 1 month. You need to have the right character to be a successful trader. Put Writing (Short Put): Simply sell put options on a stock. A covered call simply involves selling (writing) a call for a stock you already own. However, because you sold the 27.5 calls at $2.00, you wouldonly realize a $1.00 loss in the stock. To be conservative you write put options with a strike price at the money ($120) for $6 each and an expiry in 1 month. Therefore a strategy must be selected which best fits those expectations. Short Combination (Short Strangle): This strategy is similar to the Short Straddle as you write a call and a put option; however, the difference is that with a short combination you use different strike prices. However, if we had sold the 30 calls for$.30 then we would have another outcome. Options prices are dependent upon the prices of their underlying instruments and can be used in various combinations for virtually unlimited market moves. By writing a deep out of the money put option the investor is able to participate in a larger decrease in the stocks value; however, a further out of the money put option will provide a smaller amount of option premium. This strategy is implemented when an investor has a bearish forecast for a stock. This way you will receive less option premium but are more likely to make a profit. So in this way, you are protected dollar for dollar. This selection process, or "investment selection protocols," is a checklist of different types and pieces of data that are favored by the individual investor. The straddle strategy is an option strategy that's based on buying both a call and put of a stock. So, if you feel the stock has a real good shot at taking a runup, you can lean your position long by selling anout-of-the-money call. For example, we would initiate a Straddle for company ABC by buying a June $20 Call as well as a June $20 Put.

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