When purchasing a call option, the underlying stock/ETF must increase in price or the call option will lose value possibly resulting in a 100% loss for your call option trade.
This video will explore the option spread advantages listed below:
1. Increased Profit Potential – A call option spread is created by purchasing a call option and selling a call option with a higher strike price. If you have an existing profit for a call option purchase and leg into an option spread, the spread can typically increase the existing profit potential of an option purchase by 50% to 100% or more.
2. The Option Sale Provides Downside Protection – The sale of a call option results in cash being credited to your brokerage account. This reduces the cost basis of the option purchase and provides downside protection in the event the price of the underlying stock declines in price.
3. Reduces Risk – The sale of a call option results in cash being credited to your brokerage account which can typically reduce the risk of a call option purchase by 30% to 50% or more.
4. Allows You to Maintain Positions During Volatile Markets – The downside protection provided by the sale of a call option to create a spread can help you maintain your spread trade during volatile markets. If you traded option purchases only, volatile price swings in the underlying stock can result in getting stopped out of your directional call option trade.
5. Spreads Can Be Profitable If a Stock Goes Up or Down – Depending on the strike price, option spreads can be profitable if the underlying stock price increases, decreases or remains flat at option expiration
Chuck Hughes Online – Protecting Option Profits
In this video, we will explore an option strategy that can provide protection for existing call option purchases if the underlying stock/ETF declines in price and at the same time, can increase the profit potential for your call option trade.
PowerTrend has produced a lot of profitable call option trades over the years. When you have a profitable call option trade should you hold the trade for further upside profit potential . . . Or do you take profits in case the stock declines in price with the possibility of a profitable option trade turning into a loss?
Success is the sum of small efforts, repeated day in and day out.
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–Confucius (551-479 BC), philosopher
Never confuse a single defeat with a final defeat.
–F. Scott Fitzgerald (1896-1940), American author
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Stock options trading course for beginners lesson 1 covers the basics of options trading. You will learn about the risk and rewards of trading stock call options and put options. You will also learn about options terminologies like delta, theta and vega.
Stock investment & trading insights by Adam Khoo shows you profitable trading and investment opportunities in today’s stock markets.
These are essential strategies for stock traders and investors who want to improve their investment and trading performance.
Adam Khoo is a professional stocks and forex trading and the best-selling author of ‘Winning the Game of Stocks” and “Profit from the Panic”. Thousands of students have profited from his sharp investment insights into the world of stock investing and trading.
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