5. Different strategies available to Trade Options
We support 3 types of strategies to trade options as per below. You should understand the risk involved before using either one of the strategies.
1. Covered Calls
- Covered call means you are selling another person the right to buy a stock which you already own, (reason why it is called "covered") during the course of the option contract at the strike price.
- Covered calls are popular options strategy to generate income from option premiums.
- Here the trader believes there will be just a slight increase and decrease in the underlying stock price for the life of the call option.
2. Covered Puts
- Covered put means you are selling the underlying stock and selling a put option against it.
- The risk with a covered put is that if it is exercised, then the option seller is obligated to buy 100 underlying stocks at the puts strike price.
- Here the trader is anticipating a slow fall in the market price of the underlying stocks.
3. Vertical Spreads
- A vertical strategy means simultaneously buying and selling options of the same type, that is calls or puts at different strike prices but with the same expiration.
- Traders normally use this spread when they expect a slight move in the price of the underlying assets.