The objective of the Option Sleuth is educate the investor on how a managed option strategy as part of a diversified portfolio can generate additional income and boost returns.
There are two basic types of options: the call and the put.
A call is an option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.
A put is an option contract that gives the holder the right to sell the underlying security at a specified price for a certain, fixed period of time.
Option contracts may be opened as a buy (long positions) or a write (short positions).
The following common option strategies are defined in terms of a net long position, however each strategy may also be opened as a net short position.
• Buy a call
Outlook on the underlying equity: Positive
Potential gain: Unlimited
Potential loss: Limited to price paid for call
• Buy a put
Outlook on the underlying equity: Negative
Potential gain: Limited to the value of the equity
Potential loss: Limited to price paid for put
• Buy a call spread (buy a call and sell a higher strike call)
Outlook on the underlying equity: Positive
Potential gain: Limited to spread value less price paid
Potential loss: Limited to price paid for spread
• Buy a put spread (buy a put and sell a lower strike put)
Outlook on the underlying equity: Negative
Potential gain: Limited to spread value less price paid
Potential loss: Limited to price paid for spread
• Covered call (buy equity, sell higher strike call)
Outlook on the underlying equity: Positive
Potential gain: Varies
Potential loss: Limited to value of equity less price received for call
This week's featured DVD on options trading:
Introduction to Options Trading
Tailor Made Financial Education Video Series
CreateSpace (January 2009)
From the publisher: Most average investors buy and sell stocks thinking that is the only way they can make money in the capital markets. Trading options on those same stocks gives everyday investors opportunities to get a "bigger bang for the buck," meaning that you can make more money by trading options on the same stock. Where a good profit in a stock trade may mean a 10 - 15% profit, an option on the same stock may yield 40 - 50% profit on the same move - for less money!
This video outlines all of the information you need to start using options to jump-start your investing success today!
Financial Resources
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