Options Trading Strategy
Options trading can be an effective way to generate income and hedge against market volatility. However, it's important to have a well-defined strategy in place to maximize your chances of success. In this article, we'll explore various options trading strategies and discuss their pros and cons.
1. Covered Call
A covered call strategy involves selling call options on stocks that you already own. This allows you to generate income from the premiums received while potentially limiting your upside potential if the stock price rises above the strike price of the call option.
Pros:
- Income generation through premium collection
- Potential for additional gains if the stock price remains below the strike price
- Can be used in a sideways or slightly bullish market
Cons:
- Limited upside potential if the stock price rises significantly
- Possible assignment of shares if the stock price exceeds the strike price
- Risk of loss if the stock price declines significantly
