A put option (usually just called a "put") is a financial contract between two parties, the writer (seller) and the buyer of the option. The buyer acquires a short position with the right, but not the obligation, to sell the underlying instrument at an agreed-upon price (the strike price). If the buyer exercises his right to sell the option, the seller is obliged to buy it at … [Read more...]
Short Call -Option Trading
You short a call when you write (sell) a call that you don't currently own. There are two basic types of short calls covered and uncovered (naked). The investor writing Call options should firmly believe that XYZ is not going up! XYZ doesn't have to go down, but it most definitely cannot go up. This is because the strategy's break-even point at expiration is a certain distance … [Read more...]
Collar Option Trading :Explained
A collar can be established by holding shares of an underlying stock, purchasing a protective put and writing a covered call on that stock. The option portions of this strategy are referred to as a combination. Generally, the put and the call are both out-of-the-money when this combination is established, and have the same expiration month. Both the buy and the sell sides of … [Read more...]
Protective Put Option – Option Trading
A put option purchased for an underlying security that is already owned by the holder of the option. A protective put defends against a drop in the share price of the underlying security. A protective put strategy is usually employed when the options trader is still bullish on a stock he already owns but wary of uncertainties in the near term. It is used as a means to protect … [Read more...]
Covered Call- Option Trading
A covered call is a financial market transaction in which the seller of call options owns the corresponding amount of the underlying instrument, such as shares of a stock or other securities. An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This … [Read more...]