The premium for the Call (which is $2 Out-Of-The-Money) is $0.75, and the premium for the Put (which is $2 In-The-Money) is $3.00. Sometimes, allyoull need to do is to sell the next month out call. As far as the selection process of thespread used for the rolling of the position, there will be somechoices. If you want to read more about trading options, click over to David's site at There are four types of participants in options markets: Buyers of calls, Sellers of calls, Buyers of puts and Sellers of puts. But we didn't know which direction the stock price would go. C) If shares rise above the strike price - the option is exercised, the option has underperformed the shares. If a stocks price rises above the strike price of the call option the investor will exercise the right to buy the stock. An investor feels there is some limited downside for a stock but is not as confident as an outright call writer and as a result buys the higher strike price call to cap upside risk. The options used will be identical except for the strike price (use same expiration, same stock). You know this will effect Starbucks (SBUX) bottom line so you decide to implement a long straddle because you are not sure which candidate will win. 1) Short Straddle: This strategy is implemented by simultaneously writing a put and a call option on the same stock with the same strike price and the same expiration date. As an example, say your stock is trading at $29.00 and you feelthat your stock may trade down a little but still remain in anuptrend cycle. The risk/reward profile is very similar to the Long Put; thats why it is also know as a synthetic Put. Without getting into the trading of spreads, which is aunique strategy in itself and a topic for future OptionsUniversity courses, we will talk a little about the roll. If you just bought a one-sided option, and the price goes the wrong way, you're looking at possibly losing your entire premium investment. There are four types of participants in options markets: Buyers of calls, Sellers of calls, Buyers of puts and Sellers of puts. The Bear Call Spread is implemented by buying a put option while simultaneously writing a put option with a lower strike price. For example, you know that ABC's annual report is coming out this week, but do not know whether they will exceed expectations or not. Say Google (GOOG) in one month is now trading at $450:. I currently hold a B.COM and am working towards the CFA designation. For example, lets say the stock is trading at $27.00. If, over the life of the contract, the asset value decreases, the buyer can simply elect not to exercise his/her right to buy/sell the asset. If you purchased the puts your profit would be ($500 + $15 - $450) * 100 = $6500. This is safer than buying either just a Call or just a Put. 3) 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. Picking a stock or group of stocks is only half the battle. If Straddles are so good, why doesn't everybody use them for every investment?.
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