I came across this site a month ago and i ive learnt so much i just opened my binary options account44 comments
Opportunities in binary options
Selling aggressive covered call options i. In brief, options are a form of derivative trading that traders can utilize in order to initiate a short or long position via the sale or purchase of contacts.
In the event of a covered call, this is accomplished by leveraging the shares one currently owns by selling a call contact against those shares for a premium. An option is a contract that gives the buyer of the contract the right, but not the obligation, to buy or sell an underlying security at a specified price on or before a specified date. The seller has the obligation to buy or sell the underlying security if the buyer exercises the option.
An option that gives the owner the right to buy the security at a specific price is referred to as a call bullish ; an option that gives the right of the owner to sell the security at a specific price is referred to as a put bearish. I will provide an overview of how an aggressive covered call is utilized and executed to generate current income and mitigate risk. Price at which you can buy the stock buyer of the call option or the price at which you must sell your stock seller of a call option.
The further out the contact expires the greater the premium one will have to pay in order to secure a given strike price. The greater the volatility, the greater the time premium. The value of the underlying security on the open market, if the price moves above the strike price prior to expiration, the option will increase in lock-step. The main objective of selling aggressive covered call options is to generate income however one must be cognizant of the underlying security of interest. This underlying security must provide certain characteristics in order to optimize premium income:.
As the main objective rests in generating current income, relinquishing shares is a likely possibility as these are trades not necessarily investments. Since the payoff of purchased call options increases as the stock price rises, buying call options is considered bullish as notated in the introduction. In this case, the buyer believes the stock will increase in the near-term and buys the right to purchase the stock below where the buyer believes the stock price will be in the near term.
When the price of the underlying stock surpasses the strike price, the option is said to be "in the money" and at this point, the buyer may exercise the option contract. If this occurs, the option expires worthless and the option seller keeps the premium in the form of cash as profit. Since the payoff for sold call options increases as the stock price falls, selling call options is considered bearish as indicated in the introduction.
The seller believes the stock will trade sideways or move to the downside over the near term and thus is willing to leverage his shares while collecting premiums.
A comprehensive overview is depicted in figure 1, illustrating the example discussed above Figure 1. Figure 1 — Fictional sequence of events and overview of an aggressive covered call option and its possible outcomes in generating current income. As outlined above in figure 1 three fates of the covered call can come into in play. This scenario will result in the option seller keeping the shares of company X and keeping the premium. These option contracts are typically weekly, biweekly and monthly.
If the stock of company X decreases during the contact timespan not only will the intrinsic value of the option decrease but the time value will also evaporate. The further away the stock price is from the strike price the lower the option value. The aggressive covered call option is a way to utilize options to mitigate risk, generate income via premiums and augment portfolio returns.
The basic framework and keys to selling covered calls is outlined above. The next piece will focus on more specific examples and criteria regarding selling aggressive covered calls and optimizing stock leverage.
This is a powerful way to generate income, accentuate portfolio returns if the stock of interest decreases in value, trades sideways or trends upward without crossing the strike price threshold as the premium will be kept despite any of these outcomes. This can be performed in an aggressive manner as long as the options are sold at or near the current price in-the-money. This exercise can be repeated on a monthly basis for healthy yields that can be very impactful to any portfolio over the long-term.
The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned.
Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing.
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