Stock Option Strategies

Do you know the basic actions involved in implementing a stock option strategy? Before embarking on this journey you are encouraged to do your research. Learning to decipher basic stock option strategy is a good start. There are four main ones: buying a call, writing a naked call option, buying a put option, and writing a naked put option.

Learn Basic Stock Option Strategies

At the most basic level there are just a few simple components in any stock option strategy. The first is to determine your investment goal. Then study the kind of strategies employed for situations such as the one you're evaluating. More than likely you want to prove that an underlying stock is on the brink of an increase in share price.

Then you want to define your scenario. Let's say you want to purchase a six-month call option with a strike price of $54 for a $5 premium. What's your market outlook? For this example, it's bullish with an initial cost of $500 dollars. That is based on a $5 premium for 100 shares. Your maximum profit is unlimited but your maximum loss is $500. Based on this stock option strategy your breakeven stock price is $59. This fundamental stock option strategy focuses on buying and selling (writing) call options. Although this may be a very basic strategy, you may be surprised at how often you employ it.