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Profitable Options Strategies
Traders can use a number of profitable options strategies depending upon their risk tolerance and degree of expertise. Profitable options strategies also depend upon why one is trading options in the first place. Companies that buy and sell products across the world buy options to hedge risk. Currency speculators use a range of profitable options strategies aimed at enhancing profits while limiting loss. First of all let us look at profitable options strategies from the view point of risk limitation.
Options in Foreign Currency Trading
ABC Company in the USA decides to buy machine parts from a company in Germany. They will need to pay in Euros upon delivery six months hence. They are concerned that the price of the Euro will go up versus the dollar before payment is due. This would obviously make their purchase more expensive. They could simply pay right away but would rather have the use of their money for the next six months. ABC Company will choose to buy calls on the Euro for the amount of the contract. If the Euro goes up in price they will execute the contract so that they can buy Euros at the lower contract price and not the subsequently higher spot price. If the Euro does not go up in price they will no need to execute the contract and if the Euro actually falls in price they will save money by waiting. This is one of the profitable options strategies can foreign currency traders can use. It is a sound strategy for hedging risk with options.
Market Speculation with Options
Often times profitable options strategies have to do with speculating in a volatile stock market. Let us say that you are interested in the stock of ABC Company. The stock price has been bouncing up and down in a very volatile market. You believe that the stock is either going to go up substantially or fall precipitously depending upon the success or failure of a buyout attempt by a competitor. In order to profit in either case you use what is called a long straddle options strategy. In this case you buy both a put and a call on ABC Company, both with the same expiration date and for the same strike price. Your cost of this strategy is the price of the two options contracts. You will profit if the stock price rises or falls as you will execute the appropriate contract. If the stock price simply stays put your loss will be limited to the price of the contracts.
Adding a Little Profit to Your Investment Portfolio
Investors who own a given stock can often profit from selling calls on the stock. If you correctly believe that ABC Company is at the top of its current trading range you can sell calls on the stock. You will receive the price of the options contract, like getting an extra dividend. Providing that your judgment is sound you will keep the stock because the price will not rise.
2. Traders can use a number of
profitable options strategies
depending upon their risk tolerance
and degree of expertise.
www.options-trading-education.com
3. Profitable options strategies also
depend upon why one is trading
options in the first place.
www.options-trading-education.com
4. Companies that buy and sell
products across the world buy
options to hedge risk.
www.options-trading-education.com
5. Currency speculators use a range
of profitable options strategies
aimed at enhancing profits while
limiting loss.
www.options-trading-education.com
6. First of all let us look at profitable
options strategies from the view
point of risk limitation.
www.options-trading-education.com
8. ABC Company in the USA decides
to buy machine parts from a
company in Germany. They will
need to pay in Euros upon delivery
six months hence.
www.options-trading-education.com
9. They are concerned that the price
of the Euro will go up versus the
dollar before payment is due. This
would obviously make their
purchase more expensive.
www.options-trading-education.com
10. They could simply pay right away
but would rather have the use of
their money for the next six
months.
www.options-trading-education.com
11. ABC Company will choose to buy
calls on the Euro for the amount of
the contract.
If the Euro goes up in price they will
execute the contract so that they
can buy Euros at the lower contract
price and not the subsequently
higher spot price.
www.options-trading-education.com
12. If the Euro does not go up in price
they will no need to execute the
contract and if the Euro actually
falls in price they will save money
by waiting.
www.options-trading-education.com
13. This is one of the profitable options
strategies can foreign currency
traders can use. It is a sound
strategy for hedging risk with
options.
www.options-trading-education.com
15. Often times profitable options
strategies have to do with
speculating in a volatile stock
market.
www.options-trading-education.com
16. Let us say that you are interested
in the stock of ABC Company.
www.options-trading-education.com
17. The stock price has been bouncing
up and down in a very volatile
market.
www.options-trading-education.com
18. You believe that the stock is either
going to go up substantially or fall
precipitously depending upon the
success or failure of a buyout
attempt by a competitor.
www.options-trading-education.com
19. In order to profit in either case you
use what is called a long straddle
options strategy. In this case you
buy both a put and a call on ABC
Company, both with the same
expiration date and for the same
strike price.
www.options-trading-education.com
20. Your cost of this strategy is the
price of the two options contracts.
You will profit if the stock price rises
or falls as you will execute the
appropriate contract.
www.options-trading-education.com
21. If the stock price simply stays put
your loss will be limited to the price
of the contracts.
www.options-trading-education.com
22. Adding a Little Profit to Your
Investment Portfolio
www.options-trading-education.com
23. Investors who own a given stock
can often profit from selling calls on
the stock.
www.options-trading-education.com
24. If you correctly believe that ABC
Company is at the top of its current
trading range you can sell calls on
the stock.
www.options-trading-education.com
25. You will receive the price of the
options contract, like getting an
extra dividend. Providing that your
judgment is sound you will keep the
stock because the price will not
rise.
www.options-trading-education.com
26. The worst that could happen is that
you would miss out on an
unexpected jump in the stock price
as the buyer of the option would
execute the contract and buy the
stock at the contract price.
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27. With good technical and
fundamental analysis of stock one
of the more profitable options
strategies for an investor is to profit
from selling calls on a stock that
your own.
www.options-trading-education.com
28. With good technical and
fundamental analysis of stock one
of the more profitable options
strategies for an investor is to profit
from selling calls on a stock that
your own.
www.options-trading-education.com
