What Does Open Interest in Stock Market Indicate?
Many people completely ignore open interest (- in futures & options market) data in stocks, believing it to be totally irrelevant for someone who trades in the cash segment. No wonder then, that most short term investors, even those who trade in the cash market suffer losses. One of my favorite quotes – “It takes considerable knowledge just […]
Collar Option Strategy
When to use: Collar Option Strategy is used when the investor writes a covered call to earn a premium but wants to protect himself from an unexpected sharp fall in the price of the underlying securities. In this strategy, your risk from a downside in the stock price is protected by purchasing a put option. How it works: In collar option […]
Long Combo Option Strategy
When to use: When you are Bullish and anticipate the stock / index to rise. How it works: Long Combo Option Strategy uses two option contracts with the same expiry date but different strike prices. In this strategy, you sell/write 1 out-of-the-money put option; and buy 1 out-of-the-money call option, each with the same expiry date, T. Suppose, you […]
Covered Call Option Strategy
Buy shares and sell a call option of an equal number of shares. The covered call option strategy is also called “Buy write” strategy. When to use the covered call option strategy: When you are neutral (or moderately bullish) on the short term direction of the underlying stock and you want to earn some fixed income […]
Synthetic Long Call Option Strategy
In synthetic long call option strategy – buy the underlying shares and a put option (of an equal number of shares). When to use : When you are moderately bullish on the short term direction of the underlying stock and want to earn some fixed income from your investment in the underlying stock. How it works: You buy IDBI […]
Short Straddle Option Strategy
When to use: Short straddle option strategy is used when the investor believes that the stock is not very volatile. The idea is to earn an option premium on two option contracts. The investor believes that the stock price will not change much before the expiry date. The maximum profit is the amount of premium collected by writing the […]
Long Straddle Option Strategy
When to use: Long Straddle Option Strategy is useful for investors who believe that the stock will be very volatile (i.e. move a lot in price) but are uncertain about the direction of the move. For example, suppose you believe an important court case that will make or break a company is about to be settled, and […]
Short Strangle Option Strategy
When to use: Short Strangle Option Strategy is used when the investor believes that the stock is not very volatile and that the stock price will not change much before the expiry date. The intention is to earn an option premium on two options at the same time. How it works: In the short strangle option strategy you sell an out-of-the-money call option […]
Long Strangle Option Strategy
When to use: Long Strangle Option Strategy is used when the investors believe that the stock will experience very high volatility but uncertain about the direction of its movement. How it works: In the long strangle option strategy you buy an out-of-the-money call option and an out-of-the-money put option of the same stock with the same expiration date, T. For example: On 16th August […]
Long Call Option Strategy
The most basic and commonly implemented option strategy is the Long Call Option Strategy. When to use: When you are Bullish and anticipate the stock / index to rise. How it works: Suppose, you are bullish on Tata Motors stock on 16th August 2013, when the share trades at Rs. 319. You buy a call option at a premium […]