Options

What Is Option Trading? 8 Things to Know Before You Trade

Investing with options— an advanced trader will tell you— is all about customization. Rewards can be high — but so can the risk— and your choices are plenty. But getting started isn’t easy, and there is potential for costly mistakes. Here’s a brief overview of option trading that cuts through the jargon and gets right […]

Options

Long Call Spread Strategies

A long call spread gives you the right to buy stock at strike price A and obligates you to sell the stock at strike price B if assigned. This strategy is an alternative to buying a long call. Selling a cheaper call with higher-strike B helps to offset the cost of the call you buy […]

Options

Long Put Strategy

A long put gives you the right to sell the underlying stock at strike price A. If there were no such thing as puts, the only way to benefit from a downward movement in the market would be to short sell stocks . The problem with shorting stock is you’re exposed to theoretically unlimited risk […]

Options

Short Call Strategies

Also known as a naked call, selling the short call obligates you to sell stock at strike price A if the option is assigned. When running this strategy, you want the call you sell to expire worthless. That’s why most investors sell out-of-the-money options. This strategy has a low profit potential if the stock remains […]

Options

Understanding Cash-Secured Puts

If you keep enough cash on hand, not only are you prepared in the event of an assignment, but you’ve tapped into a method to buy stock that may also earn you a little extra income along the way. Let’s explain with an example. Imagine you like stock XYZ at $52, but you’re not looking […]

Options

Selling Cash-Secured Puts for Income

As an option trading strategy, selling naked or short puts is highly risky and only recommended for experienced investors. There are differences between selling a cash-secured puts and selling a naked put. In either case, Ally Invest encourages you to stay mindful of the risks. What is a naked put? If you short a put, […]

Options

Fig Leaf Strategy

The fig leaf strategy is also known as a leveraged covered call. Here’s how it works: buying a Long-term Equity AnticiPation Securities (LEAPS) call gives you the right to buy the stock at strike A. Selling the call at strike B obligates you to sell stock at that strike price if you’re assigned. This strategy […]

Options

Short Put Spread

A short put or short vertical spread obligates you to buy the stock at strike price B if the option is assigned but gives you the right to sell stock at strike price A. A short put spread is an alternative to the short put . In addition to selling a put with strike B, […]

Options

Back Spread with Calls

Also known as Ratio Volatility Spread or a Pay Later Call, the back spread with calls is an unusual strategy. Essentially, you’re selling an at-the-money short call spread in order to help pay for the extra out-of-the-money long call at strike B. Establish this strategy for a small net credit whenever possible. That way, if […]

Options

Cash-Secured Put Strategy

Selling the put obligates you to buy stock at strike price A if the option is assigned.In this instance, you’re selling the put with the intention of buying the stock after the put is assigned. When running this strategy, you may wish to consider selling the put slightly out-of-the-money. If you do so, you’re hoping […]