Buying or selling stock options may be an effective and affordable way to maximize gains while limiting your losses. Instead of buying or selling shares of your favorite companies, you simply purchase the right to buy or sell them at a predetermined price by a predetermined date. Let’s take a look at some basic stock options trading strategies that might increase your chances of being profitable.
Buy a Call or Put
When you buy a call, you are hoping that the underlying stock price rises above the option’s strike price. If you buy a put, you are hoping that the stock price falls below the option’s strike price. Buying calls or puts can be an ideal strategy for those who are looking to limit their losses to the premium paid to acquire them.
Covered Calls Can Help Maximize Your Return on Capital
If you own at least 100 shares of a company’s stock, you will likely be allowed to write a covered call. The call is covered because you already own the shares that another person might decide to buy if their value increases. However, you are hoping that the share price remains flat until after the option expires and that it isn’t exercised.
Assuming that this happens, you can make hundreds or thousands of dollars for doing nothing more than retaining ownership of your property. This is among the most common stock options trading strategies that financial advisers will recommend to beginner traders as it is among the easiest to understand.
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