Let me explain it another way.
Suppose $CRCLB is trading at 85 right now.
You think it’s expensive and want to place an order to buy 100 shares at 80. Traditionally, if your order doesn’t get filled, the cash in your account earns almost no interest.
In this situation, you could consider using the cash in your account as collateral and placing an options order at 80 (sell put).
When the time comes (the expiration date), if the price is above 80, you won’t get the shares but you’ll keep the premium. If it’s below 80, you’ll be assigned, pay for the shares, and take ownership of them.
Conversely,
Suppose $CRCLB is trading at 85 right now.
You don’t think the price is good and don’t want to sell your shares, but you’d like to place an order to sell 100 shares at 90. Traditionally, if your order doesn’t get filled, your shares just sit in your account and you get nothing.
In this situation, you could consider using the shares in your account as collateral and placing an options order at 90 (sell call).
When the time comes (the expiration date), if the price is above 90, your shares will be sold and you’ll also receive the premium. If it’s below 90, you’ll only keep the premium.
Don’t underestimate this one-two strategy. Over time, each time you acquire shares, you’ll get them at a slightly lower price; each time you sell shares, you’ll get a slightly higher price.
Add in the premium income, and your odds of success when buying and selling shares can be considerably better than with ordinary limit orders.
#OptionTrading
#Options
Suppose $CRCLB is trading at 85 right now.
You think it’s expensive and want to place an order to buy 100 shares at 80. Traditionally, if your order doesn’t get filled, the cash in your account earns almost no interest.
In this situation, you could consider using the cash in your account as collateral and placing an options order at 80 (sell put).
When the time comes (the expiration date), if the price is above 80, you won’t get the shares but you’ll keep the premium. If it’s below 80, you’ll be assigned, pay for the shares, and take ownership of them.
Conversely,
Suppose $CRCLB is trading at 85 right now.
You don’t think the price is good and don’t want to sell your shares, but you’d like to place an order to sell 100 shares at 90. Traditionally, if your order doesn’t get filled, your shares just sit in your account and you get nothing.
In this situation, you could consider using the shares in your account as collateral and placing an options order at 90 (sell call).
When the time comes (the expiration date), if the price is above 90, your shares will be sold and you’ll also receive the premium. If it’s below 90, you’ll only keep the premium.
Don’t underestimate this one-two strategy. Over time, each time you acquire shares, you’ll get them at a slightly lower price; each time you sell shares, you’ll get a slightly higher price.
Add in the premium income, and your odds of success when buying and selling shares can be considerably better than with ordinary limit orders.
#OptionTrading
#Options
