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However, it is most effective in either a mild bull market or a quiet one. This strategy is typically used by traders to generate short term income at low risk, or to increase their returns in slow markets. Here's a more detailed guide on how to write covered calls: Bull Call Spread In the bull call spread, the options trader simultaneously buys calls at a lower strike price and sells an equal volume of calls at a higher strike price.
The trader receives the cash premium for the sold calls and pays the cash premium for the calls at the lower strike price. As the call with the lower strike price has a higher value, an initial capital outlay is necessary. Purchasing calls at a lower strike price is also known as a long call leg, while the calls sold at the higher strike prices are known as the short call leg.
Both of these call options will expire in one month. The profit on the long call leg of the trade will be: The profit on the long call leg will be: Both call options are out of the money and therefore worthless. The upside is limited to the difference between the strike prices of the call options, minus the net premium outlay and commissions paid to brokers. In the Bull Call Spread, the maximum loss is limited to the net premium outlay.
A bear put spread has limited risk and limited upside, while a short selling shares will have unlimited risk. What exactly is a Bear Put Spread A bear put spread is the opposite of a bull call spread, where the trader buys a put with a higher strike price and simultaneously sells a put with a lower strike price. Both of these options will have the same volume and the same expiry date.
However, note that a profit is only realized when the earnings from the put option covers the initial capital outlay. Why Use the Bear Put Spread Traders use the bear put spread when they expect a modest decline in the price of the underlying asset in the short term.
Instead of buying just a put option, the trader attempts to earn more by selling the puts with a lower strike price.
The maximum profit is realized when the price of the underlying asset falls to a value that is lower or equal to the lower strike price. However, the maximum profit will be the difference between the strike prices multiplied by the number of shares, minus the initial premium outlay and any commissions charged by the broker.
The options will expire worthless when prices rise above the higher strike price. Protective Collar The protective collar is a great option trading strategy that helps an investor to lock in gains after their asset has appreciated significantly.
Using a protective collar can also help to reduce capital gains tax. There are two aspects to a protective collar trading strategy. The first part of its implementation is to lock in your gains or minimize the potential of a loss from a particular stock. Assuming that your stock has the ticker AAA.
The trader will first purchase a put on ticker AAA, which gives him the right, but not the obligation to sell AAA at the specified price before the expiration date. With this put option, the trader is effectively securing profits at that strike price. The trader will have to find a way to pay for the put bought on ticker AAA.
Here comes the second part of the protective collar trading strategy. The Funding The second aspect of the protective collar strategy calls for the trader to sell or write a call option on AAA. This gives the buyer of the option the right, but not the obligation, to purchase shares of AAA the specified share price before the expiry date of the contract.
The maximum profit from the protective collar strategy is realized when the price of the underlying asset rises to a value above the strike price of the written call option. The maximum loss, or the minimum profit in this case, will be when stock prices drop below the strike price of the purchased puts. In this case, the premiums from the call options will still be there, but you will have to either exercise the put option, or sell the put option for its market value which would have increased in value.
Tax Savings Should you foresee a market downturn, selling a stock when it has appreciated significantly would require you to fork out a significant bit of capital gains tax on your profit. By using the protective collar strategy, you can protect yourself against a market downturn without having to pay the capital gains tax.
The Long Straddle A straddle is achieved when the trader holds an equal volume of puts and calls, with the same strike price and expiration dates.
A straddle is usually a play on the volatility of the market. There are two kinds of straddles — The long straddle and the short straddle. The long straddle is an options strategy where the trader purchases an equal volume of put and call options at the same strike price and expiration date.
The purpose of this is to allow the trader to make a profit when the market moves in either direction. Many binary options and Forex brokers have enticing trading platforms in addition to a horde of fabulous attractions for their traders. With this in mind, many traders are wondering whether it is okay to just invest in any binary options or Forex broker.
The truth is that not all brokers in the market today are reputable. A, for instance, there are strict regulations that have been imposed for the brokers in the region to be in a position to accept US-based traders. It is such regulations that make some brokers not to accept traders from certain geographical regions.
Rather than go through all the trouble to ascertain the best brokers in the market, we have researched the market comprehensively and are happy to present to your the best binary options and Forex brokers this year.
As such, you just have to find your preferred broker from the following list, based on your geographical location, after which you just need to sign up and start trading right away. Recommended Brokers in the UK Residing in the United Kingdom offers traders two main benefits, with regards to binary options and Forex trading.
While in the UK, you can trade with virtually any broker, without being affected by any regional restrictions. The two are also the most predominant licenses when it comes to Binary Options brokers. As such, it is advisable to choose a broker that is regulated within Europe.
Proven Options Strategies. At OptionsANIMAL you will learn easy, proven strategies.
Learn how to use the TOP Options Trading Strategies for the BEST results in different markets. We explain how these 7 strategies work to help you make. Nerdwallet ranks the best brokers for trading options online. Find the best options trading platform for you: offers include up to $ cash bonuses. Best Options Trading Brokers and Platforms.
Option trading is a way for savvy investors to leverage assets and control some of the risks associated with playing the market. With options, it's possible to profit whether stocks or going up, down, or sideways. We have complete and very informative reviews of all Binary Option trading sites on the Top10 Binary site, come and find out what the TopOption site has to offer you.
Currently, there are more than trading platforms or brokers. This was not the case in when binary options trading started since there were about 10 trading platforms. The emergence of many brokers has been good since it has created high competition, which is beneficial to investors in terms of more bonuses and high/5(). Top 5 Books to Become an Option Trader. By J.B. Maverick Options trading is particularly popular with traders who regularly trade the commodity futures markets. John Hull's "Fundamentals of.