Stock Options Canada - Futures Trading - Option Trading Research 148

Protected Short Sale: This strategy is implemented by shorting the stock and buying a call option on the stock. Under the proper conditions, options do not have to be paired with stock or another option to be an effective trading tool. Lets say you want to be conservative and only buy options trading write at the money (strike of $500). Another approach is to take your profits after a certain percentage of gain, and occasionally put up with a medium sized loss. To initiate a Straddle, we would buy a Call and Put of a stock with the same expiration date and strike price. There are two types of option contracts - Call options and Put options. However, if we had sold the 30 calls for$.30 then we would have another outcome. Writing the put options obligates the investor to buy the stock from the option buyer if the stock price decreases below the strike price and the option buyer decides to exercise the option. There are a couple of approaches to the market that are popular across many systems. Short (sell), where you do shot put in bullish condition and short call in bearish condition. Put Writing (Short Put): Simply sell put options on a stock. An investor feels the stock will remain at or very near to the strike price. A covered call simply involves selling (writing) a call for a stock you already own. If youhad owned the stock naked, then you would have lost threedollars since you owned the stock at $29.00 and it closed at$26.00 on expiration. You buy 100 shares at $25 a piece for $2500 and want to protect yourself against a decline in Starbucks (SBUX) stock price so you buy puts right at the money because you are being very conservative. If you have a more neutral view on your stock you would sell anat-the-money-call in order to receive a bigger premium whichallows for greater downside protection if the stock trades downand higher potential profit if the stock becomes stagnant. The front month option, the one that youhappen to be short, will be bought back thus ensuring you keepyour stock. For a beginner, it's easy to get drawn into the complex net, believing that there must be a simple solution that will hand you the keys to stock market success. Picking a stock or group of stocks is only half the battle. You need to find a system that gives you a good overall return, and stick to it. The reality, however, is that there are no keys that will find a winner every time. You buy 100 shares at $25 a piece for $2500 and want to protect yourself against a decline in Starbucks (SBUX) stock price so you buy puts right at the money because you are being very conservative. So we decide to initiate a Straddle strategy on the XYZ stock. C) If shares rise above the strike price - the option is exercised, the option has underperformed the shares. These pieces of data can consist of charts, indicators, oscillators, fundamental analysis, news or even tips. Remember when you sell an option you seek to capture extrinsicvalue. This strategy can work well when a major anticipated decision is about to be made for the stock: buy-back program, law suite, new technology, earnings reports, presidential election. Webster's Dictionary defines the term strategy as " 1 a) the science of planning and directing larger scale military operations, specifically (as distinguished from TACTICS) of maneuvering forces into the most advantageous position prior to actual engagement with the enemy b) a plan or action based on this. For instance, if you feel that the stock itself has a very highchance of producing capital appreciation above the potentialamount of premium you could receive from selling an at-the-moneycall, then sell an out-of-the-money-call so you can allowyourself a little more room to the upside on the stock. For example, say Apple (AAPL) is trading at $120/share and you think the price will remain somewhat stable over the next month but are a bit more causes than the Short Straddle Investor: sell Apple (AAPL) $130 Calls for $2 and sell Apple 110 (AAPL) Puts for $3; both with one month to expiration. The $65 Put is now Way-Out-Of-The-Money and its premium is now $0.25.

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