Protective puts, covered calls, strangles and straddles.

I don’t need to reinvent the wheel when there are so many great vidoes on YouTube that explains this subject. I assume that when your video is made public, I am free to embed it on this site. If you find your video here and want it deleted, please send us an email, and it will be deleted as soon as we receive the request. Let us start with an option strategy that is very simple to understand, that can be compared to an insurance on your house or on your car, a protective put.

1. Protective puts and trading put options.

As the name indicates, a protective put is insurance on the stock you own. If the stock you bought at USD 100 falls to 90, a protective put with excersize prize 100 and duration one month gives you the right to sell the stock within a month to USD 100. By buying an at the money put option with one month duration, you secure your stock at againts price falls. What you loose is the insurance or the put premium, let us say USD 5. That put option reduces your loss to USD 5. If the stock price instead increases above 105 you don’t need to excersice the option, since you can sell the stock at a higher price in the market for a net profit. After one month you can thenn buy a new put option with a higher strike price for exmple USD 110 at a premium of USD 5. You roll the option into the future when it expires. What you need to know about options is than option covers 100 stocks, the higher the volatility of a stock, ceteris paribus the more expensive is the option premium. Last, but not least the option value is made up of two parts, the time value and the real value. You need to know that the option premium decreases by the square root of time and at expiration the time value is zero, so if the option expires in the money, it is only real value. Now we let the following videos speak for themself.