How to choose the Strike Price?The strike prices used will depend on how bearish an investor is. 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. 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. But we didn't know which direction the stock price would go. For more about options strategy please visit where you have access to more detailed descriptions of options trading strategies including risk/reward profiles, when each should be used, and break even points. 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. Normally time spreads have a neutral basis but they can also be designed for a bullish or bearish basis. In order to do this, an investor must re-initiate the positionevery month at the options expiration. 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. Normally time spreads have a neutral basis but they can also be designed for a bullish or bearish basis. If you had just shorted the stock you would profit as long as the stock declines in value, but you have unlimited up side risk. For this strategy an investor will normally have a neutral to bullish market forecast. Making the most from the chosen investment opportunity is the other half. An investor is willing to accept a larger risk in exchange for the option premiums received.For example: write XYZ June 20 Puts and Write XYZ June 30 Calls. The Long Put is a popular strategy because of its simplicity and is used by investors who want a leveraged and limited risk method to participating in an expected decline in a stocks price. In essence, the call acts as insurance against an increase in the price of the stock. If the price of the stock shoots up, your Call will be way In-The-Money, and your Put will be worthless. This provides you with the option premium while your maximum risk is strike price of the option minus the premium received. So, if you feel the stock has a real good shot at taking a runup, you can lean your position long by selling anout-of-the-money call. As an investor, your strategy takes over once you complete this process and choose your investment opportunity. Short Combination (Short Strangle): This strategy is similar to the Short Straddle as you write a call and a put option; however, the difference is that with a short combination you use different strike prices. This provides you with the option premium while your maximum risk is infinite (the stock can potential increase to infinity, ha). Buy a long-term Put Option: The advantage is getting more time for the stock to decrease in price; however, there is more money at risk since you must pay a higher premium for Options with longer durations to expiration. The total cost (the price) of an option is called the premium. Picking a strike price that will maximize the profit earned when the stock price decreases. For example, lets say the stock is trading at $27.00. This strategy is implemented by simply buying a put option on a stock that an investor feels will decline in value. The options used will be identical except for the strike price (use same expiration, same stock).
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