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Long Straddle: This strategy is the opposite of the Short Straddle; an investor will simultaneously buy a call option and a put option on the same stock with the same strike price and same expiration date. An investor feels a stock will decrease only slightly and is willing to forgo any depreciation in the stock below the strike price of the written put in exchange for the premium received for writing the lower strike price put. If a stocks price rises above the strike price of the call option the investor will exercise the right to buy the stock. If you can't make up your mind which approach suits you, why not try more than one? You can always split your capital over a couple of portfolios, and use a different strategy for each portfolio. This strategy is implemented by purchasing a call option on a stock while shorting the stock. This strategy is implemented by purchasing a call option on a stock while shorting the stock. Now, the most money you can loose over the month is the $1 you paid for the put while you still can participate in any upside so as long as the Starbucks (SBUX) is trading above $26 at expiration you have made a profit. For example, lets say the stock is trading at $27.00. You can short 100 shares at $25 a piece for $2500 and want to protect yourself against a rise in the stocks price so you buy calls on Starbucks (SBUX) right at the money because you are conservative. If you shorted the stock your profit would be ($500 - $450) * 3 = $150. There are 6 common Bearish Option Strategies implemented by investors: Long Put, Protected Short Sale, Covered Put Sale, Short Call, Bear Put Spread, and Bear Call Spread. As long as Starbucks (SBUX) is trading for less than $24 at expiration you have made a profit. If you were to short the stock you need to be able to cover you position. A covered call simply involves selling (writing) a call for a stock you already own. Straddle, By engaging in a straddle transaction, buy/sell a call and put at the same strike price, the investor is taking position on the volatility of the underlying security. If you bought the Call Options your profit would be {(550-500)-16}*100 = $3400. So in this way, you are protected dollar for dollar. When an investor is less bearish the strike prices used should be closer to the current market price of the stock and the strike prices should be closer together. The investor wants some limited upside protection from shorting the stock which comes from receiving the put premium. An in-the-money option not only has extrinsic value butalso some intrinsic value. 5) Time Spreads (Calendar Spreads): This strategy is implemented by buying and writing an equal number puts or calls on the same stock with different expiration dates but the same strike prices. When an options expiration approaches, your short option caneither be in-the-money or out-of-the-money. Some stocks will move depending on which candidate wins and you decide to focus on Starbucks (SBUX). I currently hold a B.COM and am working towards the CFA designation. If XYZ lost the legal battle, the price could have dropped $10, making our Call worthless and causing us to lose our entire investment. If you bought the Call Options your profit would be {(550-500)-16}*100 = $3400. The second month option will be sold short thus re-initiatingyour covered call strategy. However, because you sold the 27.5 calls at $2.00, you wouldonly realize a $1.00 loss in the stock. We decide to buy a $65 Call and a $65 Put on XYZ, $65 being the closest strike price to the current stock price of $63.
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