The best options trading strategies

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A vanilla option is a financial product giving the right, but not the obligation, to buy or sell an asset at a given price and on a defined date.

The best options trading strategies

 Vincent Boy | Technical Analyst,Paris

We will see later that depending on the type of option chosen, it can be exercised before expiry. The seller of the option will receive the price of the option, called Premium.

The two types of possible vanilla options

Call option : a Call option (purchase option) is a financial product at maturity giving the right, but not the obligation, to buy an asset at a defined price.

Put option : a Put option (sale options) is a financial product at maturity giving the right but not the obligation to sell an asset at a defined price.

To acquire a call or put option, the investor pays a premium to the counterparty, in other words to the person who will sell the option. So-called “European” options can only be exercised at maturity, while so-called “American” options can be exercised at any time.

Furthermore, an Swissmoney option is said to be ” in the money ” when the exercise price of the option is higher than the current price of the underlying, in the case of a Put option, and lower than the current price of the underlying, as part of a Call option. An option called “at the money” is an option whose exercise price is equal to the price of the underlying. Finally, an “out of the money” option is the opposite of an “in the money” option.

The four simple strategies for trading an option

Call

Purchase Call option : the investor will pay a premium and will exercise his call option if the price of the underlying exceeds the price of the option plus the premium.

Purchase call option

Exercise price €50

Premium €1 Breakeven

point €51

Sale Call option : the sale of a call option recovers the investor’s premium, but the losses for the seller are potentially unlimited (the price of the underlying can theoretically increase to infinity).

Sale option Call

Exercise price €50

Premium €1 Breakeven

point €51

Put

Purchase option Put : as for the purchase of a Call, the investor will pay a premium but will exercise his option if the price of the underlying is lower than the price of the option less the premium.

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