Options contracts is "option to purchase or sell an asset at a future date in the future, fixed. Generally are traded on the stock market, either as an option, or directly with the other party as an over the counter.
There are many advantages to trading options, in addition to containing the elements which are Cheap transactions, have built-in leverage high-level and improve trader flexibility. often quoted a problem with the choices however is that at least 95% long option positions expire without value.
There are two kinds of sales options strategies: covered writes and revealed writes.Writing covered and options occurs when the investor owns the underlying asset against which they are writing options, ensuring that they are in possession of the asset if the Bad writing options exercised. occurs when the trader sells options in assets that do not possess.If an option is exercised, the writer has uncovered to enter the market and to buy the asset, in order to fulfil the contract.
The main reason for the useless expire is that most investors underestimate the decay time to decide. Other traders also just use them for the life insurance portfolios and are happy for the options to expire without value.
So if 95% of big pick expire without value, this means that 95% of seats sold options make money; perhaps this is where's the money?
It is important to remember that a seller gives options to the rights of the contract of sale with the buyer which limit the alternatives of the seller.However, if many buyers the mistake, perhaps seller options more logical? How many merchants you turn that the opportunity to trade in the market and the right around 95% of the time?
When you sell an option, the risk is potentially unlimited.Although the fact that 95% of options expire worthless, and the trader should manage their portfolios can be reduced and potentially mitigate this risk "unlimited".
The remuneration for the sale option is the premium paid by the buyer for the luxury to exercise the rights in the trade.From the outset, the seller of the option (Author) knows exactly what their return will be (the premium charged).
The great benefit from a sales strategy options is that the money paid up front.The seller then use this money to invest in other categories of assets to increase their return on the premium for the option.
The smart investor could sell a range of options to invest in short-term money market premium for a good rate and manage open positions may offset any occupations similar to move too far away from the profits of the entrance on the market and use of the earned premium for the mutual buy locations call.
This strategy can be covered with the sale of options on the various markets at prices different strike and different maturity dates. the risk strategy can be configured with the management of the strike price, the options are sold to further than money, and now an end time, the less likely it is that will be managed with options., respectively, the less likely it will be exercised the options, the lowest paid for them, which reduces the performance to the seller of the option.
It should be recalled, however, that the sales technically provides options trader and investor unlimited risk. as mentioned above, this can and must be met in order to ensure that the strategy is not very high risk.
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