Option Strategies Details
Buy 100 Shares + Sell 1 OTM Call
1. Reduce the cost basis of shares 2. Increase the yield of shares 3. Systematic profit-taking
Down
Neutral
Varies
Short Put
There is no potential 'loss' on the option contract, but this trade creates 'opportunity risk'. If the stock price increases significantly above the strike price of the sold Call, the trader misses out on that additional price increase because she is obliged to sell 100 shares at the strike price.
The cost basis of the shares minus the current price of the shares plus the premium received for selling the Call. (Maximum example: you own 100 shares of stock XYZ with cost basis $100 per share and you sell a $102C for $3. Stock XYZ goes to $0. Your loss is $10,000 (cost of the shares) + $300 (the premium received for the $102C) = -$9,700.)
Covered Call
Other names
You buy (or already own) 100 shares and sell 1 OTM Call
Description
A trader who owns 100 shares of stock may sell (or write) a Covered Call. The trader receives a credit, called a premium, for selling the Call and is obliged to sell those 100 shares at the strike price of the Call.