1. Covered Call Writing. Covered call writing is a strategy where the trader owns shares of a stock and sells a call option on the same stock. This approach allows the trader to generate income from the option premium while holding the underlying asset, effectively reducing the cost basis of the stock.
Example of a short call
Let's say that stock DEF is trading at $20 per share. You can sell a call on the stock with a $20 strike price for $2, and the option expires in six months. One short call contract yields a premium of $200, or $2 * 1 contract * 100 shares.
The 9:20 0 DTE straddle, as mentioned earlier in the introduction, is a type of straddle strategy wherein the trader enters a straddle at 9:20 AM in Indian markets, soon after the market opens. Here, 0 DTE stands for “zero days to expiration”. And this means the options you buy expire on the same day.
A short call is a single-leg, bearish options strategy with undefined risk and limited profit potential. Short calls are profitable if the underlying asset's price is below the strike price at expiration.
Maximum profit occurs when a short call remains out of the money until expiration and expires worthless. Investors do not have to wait until the contract expires to close the position. Profit can also occur when an investor buys (covers) the short call back before it expires at a price lower than it was sold for.
A short call is a bearish trading strategy, reflecting a bet that the security underlying the option will fall in price. The goal of the trader who sells a call is to make money from the premium and see the option expire worthless.
A short straddle is an options trading strategy in which an investor sells both a put and call at the same strike price and expiration date. The trader benefits by collecting the premium as a profit. But the trade is only effective in a market that isn't very volatile.
Lack of direction: The plan depends on the market moving in a one-sided direction to make money. During times when the market isn't sure what to do or is showing low directional movement, the approach may have trouble getting good results.
Expiry dates for both options are December 08 2022. The drawback of this strategy is that it has a potential of unlimited loss if Bank Nifty moves beyond 43000 or 43200. Unlike the Long Strangle trade, the probability of profit in a Short Strangle trade is 53.24% percent.
Ultimately, the best way to short a stock with options is by simply purchasing put options of stocks you expect to decline in value. If you suspect a stock is going to rise in value, you should simply buy the stock outright or purchase a call option.
A covered call is an options trading strategy that involves an investor holding a long position in an underlying asset, such as a stock, while simultaneously writing (selling) call options on the same asset. This approach aims to generate additional income from the premiums received by selling the call options.
Buying puts offers better profit potential than short selling if the stock declines substantially. The put buyer's entire investment can be lost if the stock doesn't decline below the strike by expiration, but the loss is capped at the initial investment.
Picking the Safest Options Strategy
Selling options spreads is one such strategy that fits the bill. It's often seen as one of the lowest risk option strategies because it allows you to have a pre-determined capped loss risk when trading. This way, you're not only minimizing risk but also generating income.
Buying a Call
Buying (going long) a call is among the most basic option strategies. It is a relatively low-risk strategy since the maximum loss is restricted to the premium paid to buy the call, while the maximum reward is potentially limitless.
This strategy involves selling a call and a put option with the same strike price and expiration date at 9:20 am. Traders aim to profit from the intraday time decay in the options' price and typically exit the positions by 3:15 pm.
Exiting a Long Straddle
A long straddle looks to capitalize on a sharp move in stock price, implied volatility, or both. If the underlying asset moves far enough before expiration, or implied volatility expands, the trade is exited by selling-to-close (STC) the two long options contracts.
Double straddle After a straddle, any player can "re-straddle" by doubling the original straddle. Pre-flop action starts with the player to the left of the re-straddler. A double straddle is commonly considered a fourth blind. For example, if you're playing a $1/$2 game, the straddle would be $4 (twice the big blind).
A short straddle is an options trading strategy that is deployed when a trader believes that the market or the underlying asset will not move significantly. Per this strategy, the trader sells the call option and put option with the same strike price and same expiry.
The butterfly strategy is employed by options traders who anticipate minimal movement in the price of the underlying asset. In this strategy, traders buy and sell three options contracts simultaneously. All of them have different strike prices but the same expiration date.
A covered straddle position is created by buying (or owning) stock and selling both an at-the-money call and an at-the-money put. The call and put have the same strike price and same expiration date. The position profits if the underlying stock trades above the break-even point, but profit potential is limited.
Buy the stock and close the position: When you're ready to close the position, buy the stock just as you would if you were going long. This will automatically close out the negative short position. The difference in your sell and buy prices is your profit (or loss).
You may ask yourself, “When should you sell your options at what profit?” As a rule of thumb, if you see a quick appreciation of your option's value, considering that selling options cannot lead you to earn more than the 100% of the premium, it may be wise to sell the option and take profits while you can.
The call option seller's downside is potentially unlimited. As the spot price of the underlying asset exceeds the strike price, the writer of the option incurs a loss accordingly (equal to the option buyer's profit).