Buy Call
Description
  • Buying a call option gives the owner the right to buy shares of the underlying security for a specified price (strike price) by a certain date (expiration date). Since the purchaser is not obligated to exercise their right to purchase shares of the underlying security, the most that can be lost is the initial cost (premium) of the call option.

Usage

  • Expect significant upward move in stock price
  • Want to place absolute limit on risk
  • Willing to accept losses even if stock price goes down

Profit & Loss increases when:

  • Price of stock goes up
  • Price volatility of stock rises

Profit & Loss decreases when:

  • Price of stock goes down
  • Price volatility of stock falls
  • Expiration date approaches

  • Red Line: Profit & Loss Today
  • Blue Line: Profit & Loss 30 days from today
  • Green Line: Profit & Loss 60 days from today
  • Black Line: Profit & Loss at Expiration
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Buy Put
Description
  • Buying a put option gives the owner the right to sell shares of the underlying security for a specified price (strike price) by a certain date (expiration date). Since the purchaser is not obligated to exercise their right to sell shares of the underlying security, the most that can be lost is the initial cost (premium) of the put option.

Usage

  • Expect significant fall in stock price
  • Want to place absolute limit on risk
  • Willing to accept losses even if stock price rises

Profit & Loss increases when:

  • Price of stock falls
  • Price volatility of stock rises

Profit & Loss decreases when:

  • Price of stock rises
  • Price volatility of stock falls
  • Expiration date approaches

Notes:

  • Maximum loss equal to initial option premium 

  • Red Line: Profit & Loss Today
  • Blue Line: Profit & Loss 30 days from today
  • Green Line: Profit & Loss 60 days from today
  • Black Line: Profit & Loss at Expiration
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Buy Call Spread
Description
  • Buy 1 Call Option
  • Sell 1 Call Option with Higher Strike and Same Expiration Date

Usage

  • Expect some rise in price of stock
  • Want to place absolute limit on risk
  • Willing to accept losses even if stock price declines
  • Willing to accept cap on gains if stock rises sharply

Profit & Loss increases when:

  • Price of stock rises
  • Price volatility of stock increases

Profit & Loss decreases when:

  • Price of stock falls
  • Price volatility of stock falls
  • Expiration date approaches

Notes

  • Trade may require margin 

  • Red Line: Profit & Loss Today
  • Blue Line: Profit & Loss 30 days from today
  • Green Line: Profit & Loss 60 days from today
  • Black Line: Profit & Loss at Expiration
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Buy Put Spread
Description
  • Buy 1 Put Option
  • Sell 1 Put Option with Lower Strike and Same Expiration Date

Usage

  • Expect some fall in price of stock
  • Want to place absolute limit on risk
  • Willing to accept losses even if stock price rises
  • Willing to accept cap on gains if stock falls sharply

Profit & Loss increases when:

  • Price of stock falls
  • Price volatility of stock declines

Profit & Loss decreases when:

  • Price of stock rises
  • Price volatility of stock rises
  • Expiration date approaches

Notes

  • Trade may require margin 

  • Red Line: Profit & Loss Today
  • Blue Line: Profit & Loss 30 days from today
  • Green Line: Profit & Loss 60 days from today
  • Black Line: Profit & Loss at Expiration
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Covered Write
Description
  • Sell 1 Call Option against shares of the underlying stock that the user already owns or Sell 1 Call Option and simultaneously buy shares of the underlying stock. The seller receives the option's premium for selling the call, but will be obligated to sell the underlying stock at the strike price if the call option is exercised.  If the seller owns less than 100 shares of the underlying stock, OptionMentor may suggest purchasing more of the stock. 

Usage

  • Expect stock price to remain in range or fall slightly
  • Want some protection against falling prices
  • Want to avoid paying directly this protection
  • Willing to give up gains if stock should rise significantly

Profit & Loss increases when:

  • Price of stock goes remains range bound
  • With the passage of time
  • When price volatility of stock goes down

Profit & Loss decreases when:

  • Price of stock falls sharply
  • Price of stock rises sharply
  • when price volatility of stock goes up
  • Expiration date approaches

Notes:

  • A Covered Write could require money if the strategy buys additional shares in addition to selling options. If the cost of the shares is greater than the premium received, there will be a cost to complete this trade.
  • Trade may require margin
  • Liquidating position after dramatic fall in stock price and large increase in market volatility may result in significant loss 

  • Red Line: Profit & Loss Today
  • Blue Line: Profit & Loss 30 days from today
  • Green Line: Profit & Loss 60 days from today
  • Black Line: Profit & Loss at Expiration
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Buy  Protected Put

Trade
Buying a put option allows you to protect a stock that you already own against a decline.   Basically, for the price (premium) of the option,  you can lock in the sale price for your stock.  If the stock price should rise, you can take advantage of unlimited profit potential. 

 Usage
  • Expects stock price to rise, but fear that price could fall
  • Want to protect unrealized gains without having to sell stock

Profit & Loss increases when:

  • Price of stock goes down sharply
  • Price of stock rises sharply
  •  Price volatility of stock rises 

Profit & Loss decreases when:

  • Price of stock remains in trading range 
  • Price volatility of stock falls.

  • Red Line: Profit & Loss Today 
  • Blue Line: Profit & Loss 30 days from today 
  • Green Line: Profit & Loss 60 days from today 
  • Black Line: Profit & Loss at Expiration