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Buying Calls (Long Call)
If, at any time, you are interested in reverting to our default settings, please select Default Setting above. If you have any questions or encounter any issues in changing your default settings, please email isfeedback nasdaq. A covered call strategy involves buying shares of the underlying asset and selling a call option against those shares.
In exchange for this risk, a covered call strategy provides limited downside protection in the form of premium received when selling the call option. A protective put is a long put, like the strategy we discussed above; however, the goal, as the name implies, is downside protection versus attempting to profit from a downside move.
If a trader owns shares that he or she is bullish on in the long run but wants to protect against a decline in the short run, they may purchase a protective put. Hence, the position can effectively be thought of as an insurance strategy. The trader can set the strike price below the current price to reduce premium payment at the expense of decreasing downside protection.
This can be thought of as deductible insurance. The following put options are available:. The table shows that the cost of the protection increases with the level thereof. Options offer alternative strategies for investors to profit from trading underlying securities. There's a variety of strategies involving different combinations of options, underlying assets and other derivatives.
Basic strategies for beginners include buying calls, buying puts, selling covered calls and buying protective puts. The following are basic option strategies for beginners. Buying Calls Long Call This is the preferred strategy for traders who: Buying Puts Long Put This is the preferred strategy for traders who: