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An Option is a contract that helps the investor buy or sell a stock or an index. The buying or selling of options is conducted at a predetermined price over a specific period and is exchanged for a premium paid by the buyer to the seller.
Option selling strategies are some basic strategies that investors can use to help increase returns, predict the market's movement better, or even protect any existing investments better.
For investors to figure out which one is a good strategy to invest in, we have here a list of option selling strategies for them.
To help investors make the best choice, here's a look at some of the best option selling strategies.
1. Bull Call Spread:
In this option selling strategy, a trader invests in an ATM or At-the-money call option. The investor then proceeds to sell the Out-of-the-money option. Once this is done the call option that strikes lower than the other is known as the "in the money" (ITM) option, meaning its strike price is below the current market rate of the underlying stock. The call option that strikes higher is considered to be "out of the money" (OTM), meaning its strike price is above the current market price. Under this type of options selling strategy, the profit is directly related to the cost of the underlying stock. This means that anytime the cost increases, the investor ends up profiting accordingly.
2. Synthetic Call:
The synthetic call happens to be one of the best options selling strategies, that investors know about. This strategy ensures unlimited profits with limited risks. In this strategy, the investors purchase put options on their stock, which they think will rise in the future. A put option is a type of options contract that gives the owner the right, but not the obligation, to sell a specified amount of the underlying asset.
3. Breakout Strategy:
The breakout strategy is an intraday options selling strategy. When it comes to buying and selling stocks on the same day, timing is of utmost importance. This strategy helps in identifying and making a profit from certain price movements that might be taking place in their stocks, specifically certain breaks through one or more levels of resistance. Once this break happens, it is assumed that the stock will keep moving in the same direction post the break, thus resulting in notable profits.
4. Gap-and-Go Strategy:
Under this strategy, investors try to find stocks that do not have any pre-market volume. If the price of a stock opens higher when compared to the previous day’s closing price it is called a gap up. In the case of the opposite, it is known as a gap down. Investors want to buy such stocks as they think that the gap will close before the closing bell.
Though there are many more options selling strategies, it is also important that an investor and traders know that they can use several strategies that are low-risk and usually associated with options. Therefore, even if you are new to the market or apprehensive about investing, you can use option selling strategies to make informed decisions. However, always make sure to do your research before making any investment decisions.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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