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The payoff from a short call looks exactly like the inverse of the long call shown before: For every stock price below $20, the option expires worthless, and the call writer keeps the full cash ...
The options trader makes a profit of $200, or the $400 option value (100 shares * 1 contract * $4 value at expiration) minus the $200 premium paid for the call.
These strategies may provide downside protection as well. Writing out-of-the-money covered calls is a good example of such a strategy. The purchaser of the covered call is paying a premium for the option to purchase, at the strike price (rather than the market price), the assets you already own.
Payoffs from a short put position, equivalent to that of a covered call Payoffs from a short call position, equivalent to that of a covered put. A covered option is a financial transaction in which the holder of securities sells (or "writes") a type of financial options contract known as a "call" or a "put" against stock that they own or are shorting.
By owning the stock, you’re “covered” (i.e. protected) if the stock rises and the call option expires in the money. A covered call is one of the lower-risk option strategies, and it’s even ...
A long butterfly options strategy consists of the following options: Long 1 call with a strike price of (X − a) Short 2 calls with a strike price of X; Long 1 call with a strike price of (X + a) where X = the spot price (i.e. current market price of underlying) and a > 0. Using put–call parity a long butterfly can also be created as follows:
A ladder is also similar to a condor, the key difference being that a condor has an additional option; for example, a long call condor is similar to a long call ladder but with an extra call at a higher strike. [4] A ladder's Greeks are generally similar to a strangle. [1]
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