finance
3 options strategies every investor should know
Stock options can be worthwhile derivatives for investors, however, trading them without weighing their pros and cons can be a mistake. Upon buying an option, one gets the right to buy or sell an asset at a certain price and within a set time frame. Options can strengthen an investor’s portfolio when traded using strategies that minimize the risk and maximize the returns. So, here are a few strategies one must consider while trading options: 1. Covered call One of the most popular option trading strategies is buying a naked call option. The covered call strategy reduces investment risk and helps generate some income. To pull off this strategy, one must purchase the underlying stock as they normally would while simultaneously writing (or selling) call options on the same shares. A call option gives one the right to buy a stock, and a put option gives them the right to sell a stock. For instance, if one uses a call option on a given stock that represents exactly 100 shares of stock for every call option, for every 100 shares of stock one would buy, they will sell a call option against the purchase. So, if the stock price increases rapidly, one’s short call is covered by the long stock position.
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