The hardest part of learning about options trading strategies is getting used to the language. Once you nail that, you're most of the way there.
Here are the terms you are going to need to learn to understand and use options. Keep in mind that the best way to master jargon is by applying it in real situations.
Let's jump right in by first explaining puts and calls.
These are two of the key fixed ingredients of an option - fixed, meaning they never change. They tell us what the option stands for and what it is worth.
A call is a contract that gives its owner the right to buy 100 shares of stock at a fixed price (known in advance). A put is just the opposite, and completes the transaction. It's a contract giving its owner the right to sell 100 shares of stock.
These concepts are the keys to exactly what an option is.
An option is a contract granting you as buyer control over 100 shares of stock. This is always the case - one option per 100 shares.
So when you buy a call, one major benefit is that you control 100 shares. This means that:
strike price
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Options Trading Strategies: Taking the Mystery Out of Puts and Calls
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Cash-Secured Puts: Keep the Cash Flowing - Even After You've Sold the Stock
In January, I told you how you can double or even triple your yield by selling "covered" calls on your dividend stocks.
While this is a safe and highly effective strategy, selling covered calls does have a drawback - of a sort.
If the stock you're holding rises in price before the calls you sold expire, you could be forced to sell the shares at the option's designated strike price.
This isn't likely to be a huge problem since you'll be selling your stock at a profit. The problem is that if you no longer own the stock, you won't be getting the dividend.
Fortunately, this problem has an easy solution. It's a strategy called selling "cash-secured puts."
Using cash-secured puts, you can maintain your cash flow while you're waiting to repurchase the actual stock at a price equal to or below where you just sold it.
While this is a safe and highly effective strategy, selling covered calls does have a drawback - of a sort.
If the stock you're holding rises in price before the calls you sold expire, you could be forced to sell the shares at the option's designated strike price.
This isn't likely to be a huge problem since you'll be selling your stock at a profit. The problem is that if you no longer own the stock, you won't be getting the dividend.
Fortunately, this problem has an easy solution. It's a strategy called selling "cash-secured puts."
Using cash-secured puts, you can maintain your cash flow while you're waiting to repurchase the actual stock at a price equal to or below where you just sold it.
How to Use a Cash-Secured Put to Generate Income
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