COVERED CALL

A covered call is a financial transaction in which the investor who sells the call options owns the same amount of the underlying security.

Why use the Covered Call Options Trading Strategy (SUITIBILITY)?

However, this strategy isn’t to make a profit from the options. It is primarily to return a profit from the stock that goes through the neutral stage of neither increase in price nor any decrease.

If the perspective of seeing the stock is neutral then one would use it but don’t sell it and would prefer to make some profit without moving.

One may even use to reduce losses if the price of the stock falls. If someone is looking for any protection against a sizable fall then the protective put is a better choice.

Establishing the Covered Call Neutral Trading Strategy

 

Choosing an Expiration Date

While choosing an expiration date for the options, one should choose the expiration that is the closest, namely the nearest month.

By exercising this, one will benefit a quick rate of time decay. There is a shorter time span for the stock to move at price.

An example of the covered call can be: one has 100 shares of company A stocks which are currently at Rs.50. This price can be the starting point.

We believe that the price won’t move over the next few weeks. We can see it as an opportunity to profit from it.

Out of the money calls with the strike price of Rs.52, the expiration date that seems to be closest is trading at Rs.1.

So the person will write one call option contract in which each contract contains 10 options and then receive a credit of Rs.100.

PROTECTIVE PUT

Protective Puts & Protective Calls are option trading strategies used to protect profits which can be realized. These are advanced option trading strategies used by Traders.

Application of Protective Puts Strategy (SUITIBILITY)

We apply protective puts in the case of stocks, currencies, commodities, and indexes. It helps in protecting them when they see a downfall. The protective put often acts as an insurance policy by providing downfall protection.

It provides privacy whenever the price of the asset declines. On the other hand, the protective call is the type of option strategy which we use for minimizing the risk.

We use the strategy of protective call when the trader is hopeless towards the market. He may also be expecting the price to decline.

The protective call is often what we know as synthetic long put. Its risk and reward profile is quite similar to that of the long put.

Gains from the maximum profit by the protective call is more whereas the maximum risk is less. The protective call is the most simple and we use it as a strategy while keeping the positions wide open.

EXAMPLE

 

So, if the share owned is 100, which is 20 INR at trading, then there is a need to purchase one put with a crash price of 20 INR. It is a must to purchase options that have some months until it expires.

If the commodity which is being used continues to grow in cost then for sure that the put option would expire and this is totally worthless.

But there is also a high possibility that the buyer will gain more money from the commodity position and if in case the price went down, then the put option will get high in terms of value and covers the losses that are being made from the commodity position.

CONCLUSION

The productive put and the productive call are not actually the options trading strategies. It is because they are for speculation in the market but they are better tools. Also, they act as a good example of how better options strategies are.

Without options strategies, it is hard for the trader or the investor to protect their gains from an open place. As a result, they have to close or back out from that function.

They consequently pass over on extra earnings if the inventory persevered shifting within the proper direction.

However, by applying these protective put and protective call strategies correctly, it is possible to have the best profits. They can expect it along with the best and rising market within both worlds.

please see the attached file.