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Options Trading Strategies for Beginners Vol.1
Introduction to Options Trading Strategies
Options trading provides traders with flexible tools to hedge risks, generate income, and speculate on price movements. By using different strategies, traders can tailor their positions to their market outlook and risk tolerance. This article introduces several popular options trading strategies and explains how they work with trading examples.
Covered Call Strategy
How It Works: A covered call involves holding a long position in an underlying stock and simultaneously selling a call option on the same asset. This strategy generates income through the premium collected from selling the call option but limits the upside potential if the stock price rises above the strike price.
Example: An investor owns 100 shares of XYZ stock trading at $50 per share. They sell a call option with a $55 strike price for a premium of $2 per share. If XYZ stays below $55, they keep the $2 premium as profit. If XYZ rises above $55, they are obligated to sell at $55, capping their profit.
