4. options trading strategies

Call Options vs. Put Options

Covered calls: These give you the right to purchase an asset you already own in your stock portfolio at a specific price on a future date. Covered calls are the least risky call option and are best for newer options traders who think an asset price will go up between now and the exercise date. This is a hedging strategy to limit losses.

Covered puts: This strategy enables you to sell an asset at a specific date in the future. These are a good way for newer options traders to test strategies where they believe a stock, commodity, currency or other asset will go down in value. Like covered calls, you own an investment in the asset before buying a covered put to limit your losses or hedge your existing investment.

Long calls and puts: Long calls and puts are similar to covered calls and puts, but you don’t already own the underlying asset. This is the most common type of option you’ll trade as a beginner in most cases.

Uncovered calls and puts: These work similarly to other strategies but are riskier. Uncovered options are best for experienced traders, as they come with the potential for higher losses. Many brokerages don’t enable uncovered options trading for newer customers or those with less experience.

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