Strategies in Options

abhishreshthaa

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OPTIONS STRATEGIES:

  • Long Call

  • Long Put

  • Married Put

  • Protective Put

  • Covered Call

  • Covered Put

  • Bull Call Spread

  • Bear Put Spread

  • Collar

Long Call

Bullish Speculation

  • The investor buys such a call option instead of buying the underlying security comparing the lower cost of buying a call contract versus an equivalent amount of stock as a form insurance.

  • The investor protects himself against rise in the price of the underlying security and gets his purchase price locked by taking a Long Call.

  • Maximum Profit is UNLIMITED.

  • Maximum Loss is LIMITED to the extent of Option Premium paid.

Long Put

Bearish Speculation

  • The investor buys such a Put Option instead of actually owning the underlying security and making profit out of downward movement of the same.

  • “ Short Selling”

  • The investor willing to sell his securities at a future date due to some reason protects himself against fall in the price in underlying security and gets his selling price locked by taking a Long Put.

  • Maximum Profit is LIMITED by stock declining to Zero.
  • Maximum Loss is LIMITED to the extent of Option Premium paid.


Married Put

Bullish to very bullish.

  • The investor employing the married put strategy wants the benefits of stock ownership (dividends, voting rights, etc.), but has concerns about unknown, near-term, downside market risks.

  • Purchasing puts with the purchase of shares of the underlying stock is a directional and bullish strategy.

  • The primary motivation of this investor is to protect his shares of the underlying security from a decrease in market price.

  • He will generally purchase a number of put contracts equivalent to the number of shares held.
 
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