Guess investors to hedge the equity to generate revenue, primarily as a strategic stock market, please use the option. Option, the recipient (buyer) the right, but not the obligation, security at a predetermined price on or before a predetermined date (or equity shares) is a contract between two parties to buy or sell a given. Recipient to get this right, writer of the contract (the seller) pays the premium.
Over the Australian market, there are many benefits of stock option transactions in the United States. Therefore, the following are the details that apply to stock options of the United States.
Standard number of shares subject to options contracts in the U.S. one is 100.
The U.S. equity options contracts expire the third Friday of every month.
Calls and puts: There are two types of options available. Both options are purchased or (sold separately) can be written. Call option, or before a predetermined date, at a predetermined price in order to purchase the underlying shares, the rights of the recipient, but not the obligation to give. Put Option will entitle the recipient, at a predetermined price on or before the prescribed date, an obligation not to sell the underlying shares. Recipient of the PUT is to exercise the option if they are required to provide the underlying shares.
The benefit of writing. Stock market investors to describe the options and strategies for revenue generation. We, including those purchased using margin lending facility, through dividends by writing call options on shares of the Company can earn an extra income of the above. Call options on shares owned by our "cover" because it is, this strategy is known as covered call writing. By writing an option, we will receive the option premium up front as an instant income. While to get to keep our premiums, we may be required to provide the Company's shares at the exercise price for the people and exercised. This Company's shares, we invest that we can recover the capital, similar to the conversion to cash.
Writing covered calls is limited because of potential loss is considered a conservative strategy in general revenue generation. Premium options, we can significantly reduce the risk of in this way, reduce the cost of owning stocks. Also, it is comparable to the shares at wholesale prices. Our biggest risk is that the stock price plunged. In order to manage the downside risk of owning stocks, we (see Risk Management below) you can buy put options to hedge our portfolio. If the stock drops significantly, we are the majority of our capital equivalent to the value of the exercise price of the stock to the writer put into place and can be recovered.
The option premium is the cost of the option. Recipient of one option writer receives a premium, the premium paid. This premium is comprised of two components, the intrinsic value and time. Intrinsic value, unlike the option exercise price and the stock price is. The time value, representing the balance of the option premium. Thus, the option agreement is subject to time decay. The last option is 1 / 3 of its life, with 2 / 3 2 / 3 of the life of the first of its values, to lose 1 / 3 of its value. At the end, the option becomes worthless. Historically, 70 - 80% of options expire worthless. This is also compared to the candidate gives the writer much more advantageous option.
Taking advantage of the option. Stock market investors and traders, potentially, take the option to take advantage of the next.
Risk management: We can buy put options to guarantee against possible declines in the value of shares.
Leverage: options without having to buy the underlying stock, give us leverage in order to benefit from higher returns for small initial outlay. However, leverage, we usually risky than direct investments to pay the full amount of the underlying shares. Diversification: option to allow the benefits of our diversified portfolio of equity capital due to lower spending to buy shares directly to us.
Time to decide until you decide whether to purchase the shares by exercising the option expiration date, by taking the call option of an inch to give us, which has locked the purchase price of the stock. By taking the put option as well, we have (see the above risk management) has a time to determine whether to sell the shares.
Speculation: You can trade options without exercising them until now we have. If we expect the market to rise, we can also buy a call option. If we are expected to fall, we can also buy a put option. We should take the profit anyway (see above risk management) in order to limit losses, you can sell the option before expiration.
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