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Selling Call
Options.
By selling a call option, you are selling
the right to buy the underlying stock or index at a particular strike
price to an option holder. Sellers have obligations. Selling a call
option prompts the deposit of a credit. You get to keep this credit if
the option expires worthless. A trader who sell call options believe
that the market will fall.
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To make money on a short call, the
price of the security must stay below the call's strike price. The
profit is limited to the credit received from the sale of the call.
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If the price of the security rises
above the short call strike price, it will be assigned to an option
holder who may choose to exercise it. Other words the option seller
must buy the underlying stock or index at the current price and sell
it at the call's lower strike price (current price - strike price =
loss). The maximum loss is unlimited to the upside, which is
why selling "naked" or unprotected call options comes with such a high
risk.
Covered and not Covered Call:
If you owned a stock you can sell the
call and receive the premium. This is called writing a covered call. If
the stock declines in price you keep the premium. If the stock goes up
in price the options buyer exercise the option and demands that you
deliver the stock at the strike price. In this case you loose your stock
but you keep the premium.
If you did not own the underlying stock
you still might sell a call. If the stock goes down you keep the
premium. However, if the stock goes up and the call buyer exercises the
option you have to buy a stock to deliver it to the call buyer.
This this the most aggressive and risky strategy an
investor can use.
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NASDAQ 100 - Trading
glossary of the most used investments terms with daily market outlook and
big library of the investment related articles and research material.
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Best Trading System -
best available online trading systems developed to trade QQQQ and SPY
options, ETFs, and index funds.
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QQQQ Options Trading
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