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These pieces of data can consist of charts, indicators, oscillators, fundamental analysis, news or even tips. When youown a stock and intend to hold it for a period of time, you areaware that you will probably be holding it while it goes up andwhile it goes down. The second month option will be sold short thus re-initiatingyour covered call strategy. One of the major misconceptions that investors have about options stems from the fact that most do not trade them properly. Investors use this strategy when they think a large price more will occur in a stock but are unsure of which direction the stock will move. The put then pays off with the value of the stock and the put, minus the premium for the put. One is to take small losses when they happen, and let your winners run. How to choose the Strike Price?The strike prices used will depend on how bearish an investor is. Writing the put options obligates the investor to buy the stock from the option buyer if the stock price decreases below the strike price and the option buyer decides to exercise the option. If the call is ever exercised, then you would receive the exercise price of the stock, which is the strike price of the call, as well the premium you received when you sold the call. If the price of the stock shoots up, your Call will be way In-The-Money, and your Put will be worthless. Straddle, By engaging in a straddle transaction, buy/sell a call and put at the same strike price, the investor is taking position on the volatility of the underlying security. Sometimes, you may even want toallow the stock to be called away if you have decided that thestock has reached a level were you want to take your profits andbegin to look for another opportunity. You would have made $2.50 in capital appreciation and $.30 inoption premium for a total of a $2.80 return. If you had just shorted the stock you would profit as long as the stock declines in value, but you have unlimited up side risk. This provides you with the option premium while your maximum risk is infinite (the stock can potential increase to infinity, ha). The success of this strategy will depend on 3 conditions:. When an investor contemplates any option strategy, he or she should always be mindful of the risks, since trading options is a bit more risky than simple stocks. If theoption is going to expire in-the-money and you want to keep thestock you will need to buy the short option back and sell thenext months call. If you have a more neutral view on your stock you would sell anat-the-money-call in order to receive a bigger premium whichallows for greater downside protection if the stock trades downand higher potential profit if the stock becomes stagnant. There are two types of option contracts - Call options and Put options. Buy a near-term Put Option: The advantage is Leverage with fewer dollars at risk; however, the option will experience rapid time decay. As long as the price of Google (GOOG) at expiration in one month is trading above ($500 (15 + 16) = $469) and below ($500 + (15 + 16) = $531) you have made a profit. One method of predicting volatility is by using the Technical Indicator called Bollinger Bands. For example, say the United States Presidential Election will occur in the next month and you want to find a way to profit. One is to take small losses when they happen, and let your winners run. The investor implementing this strategy will be expecting the underlying stock chosen to stay at or decrease below the strike price. An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a fixed price on or before a certain date. For example, say Google (GOOG) is trading at $500 and you think it will remain near that price over the next month: sell google (GOOG) $500 Calls for $16 and sell google (GOOG) $500 Puts for $15, both with expirations of about 1 month. This strategy is used when an investor is moderately bearish on a stock (the bearish equivalent of the Bull Call Spread).
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