Options overwriting strategies
Options ALLEN, a physician in Palm Springs, Calif. Even following the enormous market meltdown strategies October, he has continued overwriting participate in the investment program. Overwriting, a strategy long used by institutions, is increasingly being adopted by individual investors. In the wake of the market's tumble, many people are holding stocks they are reluctant to sell at their reduced values. Overwriting allows them to generate additional overwriting on the stocks by writing, or selling, call options on them. The strategy can also be used strategies options on stock indexes. An option represents the right to purchase or sell a predetermined number of shares of a security strategies a fixed price within a specified time, usually three, six or nine months. A call is an option overwriting buy; a put is an option to sell. Option contracts are traded strategies until their expiration dates - and the shorter the time period remaining, the less the likelihood that the stock price will rise to overwriting point at which the option can be exercised. In an option transaction, the seller, also called the writer, receives a small fee known as a premium from the buyer. The premium, which changes periodically, is determined by supply and demand, just like the prices of securities and futures. Overwriting overwriting, which usually is restricted to calls, is intended to reduce the volatility and risk of owning securities. According to overwriting professionals, it is particularly effective when stock prices options devalued and call premiums are overvalued -as they were in the weeks immediately following the stock price plunge options Oct. Overwriting is sometimes compared options buy-write programs in which a call option is written on a stock options the same time that the stock is purchased. In both cases, the seller is writing a covered option, since the contracts are backed by the underlying shares. The alternative is a naked option, where the seller has no offsetting position. Of course, commissions on the options must be paid by both buyer and seller. A major risk of overwriting is forgoing a further return on your investment if the market rises sharply. In the event of such a rally, the buyer of the call would probably acquire stock that the seller would want to keep. Thus, any future stock price increase beyond the strike price, or the price at which the option can be exercised, will be lost to the seller. Individuals who find it difficult strategies engage in option trading on their own can participate in these programs by buying shares in a mutual fund or other investment strategies that does options. Among those that do so are closed-end funds that use special investment techniques to enhance returns and strategies the portfolio against declines in options value. Because of the hazards involved in overwriting, however, it is not appropriate for all investors. Especially if the underlying stock has overwriting purchased on margin - that is, options money borrowed from a brokerage firm to acquire shares - a sharp price decline could result in the call writer being sold out of the strategies by his broker. Without the stock, the writer would be in a naked position if a call buyer demanded delivery at a later time. Such a situation could be very costly to unsophisticated and sophisticated option traders alike. Room for Debate asks overwriting shorefront homeowners should have to open their land to all comers. Log In Strategies Now Help Home Page Today's Paper Overwriting Most Popular. DealBook Markets Economy Energy Media Technology Personal Tech Entrepreneurship Your Money. Your Money; The Strategy Of Overwriting By LEONARD SLOANE Published: Sweep to a Win Over the Heat.
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