In general definition, a call option is a contract that exists between two parties where the buyer owns the right to buy a particular amount of security at a given price within a given period of time until the date of expiration.
Here are the ten ways that would help you to trade call options. Read further to know more:
1. Married put
In this strategy, the investor who owns shares can purchase the put option for them at the strike price. This is primarily used like an insurance policy when you want to avoid short-term losses on the stocks.
2. Covered Call
The covered call strategy can be used in addition to the call option. Under this, you can directly buy the assets and can sell the call option if it is applicable to those assets. In addition to that, you would also need to ensure that the number of assets that you own should be equal to the number of assets that can be availed at the call option.
3. Butterfly Spread
This particular strategy incorporated both the bear and bull spread strategy where different strike prices are used. In this, two or more types of contracts are used to develop an effective solution.
4. Iron Condor
The iron condor is one of the most complex strategies that can be used for making a significant gain on the invested money. Although it takes a long time to learn, it is an effective method that can be used to manage the financial instruments in the long term.
5. Iron Butterfly
In this strategy, the investor combines the methods of long and short straddle in addition to buying and selling of the asset on a simultaneous basis. Here both the call and put options are used in a limited capacity depending on the strike price at a given point in time.
6. Long Straddle
Long straddle strategy is adopted by those investors who want to buy the call and put options at the same strike price and expiry date. Using this strategy is beneficial when you are not sure about the flow and direction of the stock market. The profits made with this strategy are unlimited while the loss is majorly restricted to the price of the stock on both sides of the contract.
7. Long Strangle
Under this particular strategy, the investor happens to buy a call and put option which has the same maturity level but have different strike price. This is mainly used by those investors who are initially doubtful about the market that it would rise or not.
8. Protective collar Strategy
The protective collar strategy is used by the investors when they are trying to buy or sell a call option right at the same time for a given asset or stock price. Those who are willing to stay invested for a longer period of time can make use of this strategy to earn great profits in the future. Adopting this strategy helps the investors to attain amazing profits without selling the assets initially.
9. Bull Call Spread
In this strategy, the investor can buy call options at a given strike price and sell them at a higher price. In each of these cases, the expiry date along with the underlying asset happens to be similar. It is mainly used when the market is expected to show a sudden rise.
10. Uncovered calls
Although this strategy is not recommended for someone who is new to options trading as it has great risks associated with it, it is great under critical circumstances. When a trader calls the option without owning the obligated holding, then this strategy is beneficial.
On a final note, these were some of the best ways to trade call options. You can incorporate any of the strategies mentioned above according to your requirements or even consult a professional stock broker for suggesting you the best measure.