OPTIONS

Basic option strategies are fundamental to understanding options trading. Here are some of the key strategies:

1. Long Call

• Description: Buying a call option.
• Objective: Profit from an increase in the underlying asset's price.
• Risk: Limited to the premium paid for the call.
• Reward: Unlimited, as the price of the underlying asset can rise indefinitely.

2. Long Put

• Description: Buying a put option.
• Objective: Profit from a decrease in the underlying asset's price.
• Risk: Limited to the premium paid for the put.
• Reward: Substantial, as the price of the underlying asset can fall significantly.

3. Covered Call

• Description: Selling a call option while owning the equivalent amount of the underlying asset.
• Objective: Generate additional income from the premium while holding a stock.
• Risk: Limited if the stock is held, but profit potential is capped.
• Reward: Premium received from selling the call.

4. Protective Put

• Description: Buying a put option while owning the equivalent amount of the underlying asset.
• Objective: Protect against a decline in the stock's price.
• Risk: Limited to the premium paid for the put.
• Reward: Unlimited if the stock's price rises; protection if the stock's price falls.

5. Straddle

• Description: Buying both a call and a put option at the same strike price and expiration.
• Objective: Profit from significant movement in the stock's price, either up or down.
• Risk: Limited to the total premiums paid for both options.
• Reward: Substantial if the stock moves significantly in either direction.

6. Strangle

• Description: Buying a call and a put option with different strike prices but the same expiration.
• Objective: Profit from a large price move in the underlying asset.
• Risk: Limited to the total premiums paid for both options.
• Reward: Substantial if the stock moves significantly in either direction.

7. Vertical Spread

• Description: Buying and selling two options of the same type (calls or puts) with different strike prices.
• Objective: Limit risk and potential reward to a known range.
• Risk: Limited to the net premium paid.
• Reward: Limited to the difference between the strike prices minus the net premium paid.

These basic strategies form the foundation of options trading and can be combined or modified to fit various market conditions and risk tolerances.