There are several stock option strategies that investors can use to hedge against price movements, speculate on future stock price movements, or generate income. Here are some common stock option strategies:
- Covered Call: This is a conservative strategy where an investor owns shares of a stock and sells call options on those shares. The investor collects the premiums from selling the options, which can provide additional income. However, if the stock price rises above the strike price of the call option, the investor may be required to sell their shares at the lower strike price, potentially missing out on future gains.
- Protective Put: This is a defensive strategy where an investor buys put options on a stock they own in order to protect against a decline in the stock’s price. If the stock price falls, the put option will increase in value and offset the loss in the stock’s value.
- Long Call: This is a bullish strategy where an investor buys call options on a stock they believe will rise in price. If the stock price rises above the strike price of the call option, the investor can exercise the option and buy the stock at the lower strike price, potentially realizing a profit.
- Long Put: This is a bearish strategy where an investor buys put options on a stock they believe will decline in price. If the stock price falls below the strike price of the put option, the investor can exercise the option and sell the stock at the higher strike price, potentially realizing a profit.
- Straddle: This is a neutral strategy where an investor buys both call and put options on a stock with the same strike price and expiration date. If the stock price moves significantly in either direction, the investor can potentially realize a profit.
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