for the worlds best Ninja Trader Indicators sceeto’s adavanced realtime indicators are also suitable for sierra charts and trade station. text courtesy of Wikipedia A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option.[1] The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right. The buyer of a call option purchases it in the hope that the price of the underlying instrument will rise in the future. The seller of the option either expects that it will not, or is willing to give up some of the upside (profit) from a price rise in return for the premium (paid immediately) and retaining the opportunity to make a gain up to the strike price (see below for examples). Call options are most profitable for the buyer when the underlying instrument moves up, making the price of the <b>…</b>
Short Call and Long Put – Simple Bearish Option Trading Strategies
Author: Dr. Fritz Cayemitte
Options trading can provide very good ROI and possess minimal risks if good option trading strategies are applied. Currently the options trading market is accessible to many newcomers thanks to the availability of options trading channels in the internet. People who have the basic idea of the options trading must know about the options trading strategies in good detail in order to succeed. Good strategies can reduce the risks of options trading to almost zero while giving very high profits. But also, badly applied strategies can even lead to the pitfall of bankruptcy.
But before starting discussion about option trading strategies, you should first make the idea of options trading crystal clear. You must know all about stock options, their types, call options, put options, strike price and expiry dates. If you do not have good knowledge about them, it is impossible to grasp the ideas of complex option trading strategies and it is time when you start searching for more information about them.
The strategies used in options trading have wide variations. Some of them are very simple and some of them are much complex. Mostly, complex strategies consist of buying and selling more than one option with various strike prices and expiry dates at once. Most of them include both call and put options on same piece of stock to be bought and sold. But generally all strategies, simple or complex, can be divided into three categories; Bullish, Bearish and Neutral. They are different in the sense of the type of market flow they prepare the trader for and the type of change in the stock price it makes profit from. Among these three types, bearish strategies depend on the price of stock to fall to make profit.
Bearish option trading strategies can contain strategies that are very complex in nature. But the simplest strategies in this category are Short Call and Long Put options. They are very simple in nature and incorporate buying or selling only one option at once.
A short call is simply writing a single call option. It should be noted that, selling options is also known as “writing” an option. In this strategy, you write one call option at a strike price if you believe the market price will fall. In case of a successful prediction and fall in the market price of the stocks, you sell the stocks at the strike price which is higher than the market price. There is another method called Naked Call in which you do not actually own the stocks while writing the options. When the market price goes down, you buy the stocks at lower price and then sell them at the strike price. In this way, the gain is much higher but it also contains very high risk if you fail to predict the market properly.
A long put option is simply put, buying a single put option. It has lower risk on a bearish market and has high gain. If the price of the stocks falls after buying the stocks, you sell the stocks at the strike price and make profit. The Naked Put method can also be applied here and in this case, the risk is limited to only the price of the option.
So, the two strategies above are considered simple bearish strategies. If you want to know better about various other option trading strategies, you can look around in the market as well as internet. But the best method to learn about them is to seek help from various licensed firms and brokers.
Article Source: http://www.articlesbase.com/investing-articles/short-call-and-long-put-simple-bearish-option-trading-strategies-5187311.html
About the Author
Dr. Fritz I. Cayemitte is the founder and CEO of Options Learning Academy (OLA) – an education-based service that strives to teach the best of options trading. In the academy, you can learn about various option trading strategies in an easy and simplified approach. If you want to know more about option trading strategies, visit the website optionslearningacademy.com.