Options (Call and Put) by Alessandra Vargas

Types of Options Trading

2023-10-30 14:53:35 UTC

Definitions

alevargasavv74 — 2023-10-30 15:01:42 UTC

Call: Gives the buyer the right, but not the obligation, to buy a certain underlying asset at a specified price (strike price) on or before a specified date (expiration date). If the buyer chooses to exercise the option, the seller is obligated to sell the underlying asset to the buyer at the strike price.

Put: Gives the buyer the right, but not the obligation, to sell a certain underlying asset at a specified price (strike price) on or before a specified date (expiration date). If the buyer chooses to exercise the option, the seller is obligated to buy the underlying asset from the buyer at the strike price.

Underlying assets

alevargasavv74 — 2023-10-30 15:07:37 UTC

Can be a variety of different things, including:

Stocks
ETFs
Futures contracts
Currencies
Commodities

Markets

alevargasavv74 — 2023-10-30 15:10:14 UTC

Exchange-traded options (ETOs): . ETOs are the most liquid type of options market, and they offer a wide range of options contracts on a variety of underlying assets.
Over-the-counter (OTC) options: OTC options are traded directly between two parties, without the involvement of an exchange. OTC options are typically less liquid than ETOs, but they can offer more flexibility in terms of the strike prices and expiration dates of the options contracts.

5 options trading strategies for beginners

2023-10-30 15:18:22 UTC

1. Long call

In this option trading strategy, the trader buys a call — referred to as “going long” a call — and expects the stock price to exceed the strike price by expiration. The upside on this trade is uncapped and traders can earn many times their initial investment if the stock soars.

2. Covered call

A covered call involves selling a call option (“going short”) but with a twist. Here the trader sells a call but also buys the stock underlying the option, 100 shares for each call sold. Owning the stock turns a potentially risky trade — the short call — into a relatively safe trade that can generate income. Traders expect the stock price to be below the strike price at expiration. If the stock finishes above the strike price, the owner must sell the stock to the call buyer at the strike price.

3. Long put

In this strategy, the trader buys a put — referred to as “going long” a put — and expects the stock price to be below the strike price by expiration. The upside on this trade can be many multiples of the initial investment if the stock falls significantly.

4. Short put

This options trading strategy is the flipside of the long put, but here the trader sells a put — referred to as “going short” a put — and expects the stock price to be above the strike price by expiration. In exchange for selling a put, the trader receives a cash premium, which is the most a short put can earn. If the stock closes below the strike price at option expiration, the trader must buy it at the strike price.

5. Married put

This strategy is like the long put with a twist. The trader owns the underlying stock and also buys a put. This is a hedged trade, in which the trader expects the stock to rise but wants “insurance” in the event that the stock falls. If the stock does fall, the long put offsets the decline.

More advanced option trading strategies: https://www.optionsplaybook.com/option-strategies/