SP#01: BASIC UNDERSTANDING OF OPTIONS TRADING:
Concepts of Future and Options could be tricky sometimes, but one should focus on limited and probably easier things as a trader. Let’s understand options purely for trading purposes.
If your speculation is:
1. The underlying asset will move up significantly; you may consider Buying the Call options.
2. The underlying asset will move down significantly; you may consider Buying the Put options.
If you are unsure about the direction but could speculate that:
1. The underlying asset will not cross a particular upper level (i.e., you expect that the upsides for the stock are limited); you may consider Selling the Call options.
2. The underlying asset will not cross a particular lower level (i.e., you expect that the downsides for the stock are limited); you may consider Selling the Put options.
Tip to Long term Investors:
• If the stock you want to hold for longer period is going though short-term corrections and you are seeing losses in your portfolio, you may consider Selling the Call options at upper levels. This will give you significant cushion in term of income from premiums until your stock start performing again.
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