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25 PROVEN STRATEGIES. for trading options on CME Group futures. HOW TO USE THIS BOOKLET. Pattern evolution: Each illustration demonstrates the effect of time decay on the total option premium involved in the position. The left vertical axis shows the profit/loss scale.
Vega stands for the option position’s sensitivity to volatility. Options tend to increase in value when the underlying stock’s volatility increases. So, volatil-ity helps the owner of an option and hurts the writer of an option. Vega is pos-itive for long option positions and negative for short option positions.
Long Put Net Position Covered Call This strategy consists of writing (selling) a call that is covered by an equivalent long stock position (100 shares). It provides a small hedge on the stock and allows an investor to earn premium income, in return for temporarily forfeiting much of the stock’s upside potential. Maximum profit of the un-
The Complete Guide to Option Strategies shows you how options can be used to prosper under many market conditions, take advantage of time decay, and limit risk.
Buying Options for Leveraged Returns. Long Call (Bullish) The strategy is to buy call options with the expectation that the stock price will rise before expiration, then sell them for a profit.
Buy Put Buying or “Going Long” on a Put is a strategy that must be devised when the investor is Bearish on the market direction going down in the short-term. A Put Option gives the buyer of the Put a right to sell the Stock (to the Put Seller) at a pre-specified price and thereby limit his risk.
With these four strategies, we would buy calls and puts with at least three months (or more) left to expiration, thereby looking for the options to increase in value during that time.
