Call options can be considered as a derivative security with which the investors get to sell the assets at a high market price. These can be used strategically to earn substantial gains for a long-term period.
Find out more about the different approaches for earning profits through call options below:
- Covered Call
Apart from buying a call option, you can also opt for a basic covered call strategy. With this, you get to buy the assets right away, and at the same time can sell the call option that is applicable to those assets. You would need to take care that the amount of the assets that you own should be equal to the number of assets that have the call option.
- Married Put
With this strategy, the investor who owns certain shares can at the same time purchase a put option for a similar number of shares. You can take this measure when you want to protect yourself from the short-term losses. Moreover, the strategy, in this case, is used like an insurance policy.
- Bull call spread
Under this strategy, an investor can choose to buy call options at a given strike price and can sell them at a much higher price. In both of these cases, the expiry date and the underlying asset would be similar. The bull call spread is usually used when the investor expects the market to rise.
- Protective collar strategy
This particular strategy is used while purchasing a put option or selling a call option all at the same time for a particular share or an asset. Investors who hold a long position in a stock can make use of this strategy to earn significant profits. This is a great way for the investors to earn gains without actually selling the assets.
- Long straddle
For investors who wish to purchase the call and put at the same strike price and expiry date, this strategy is what you need to adopt. The strategy is applicable in the circumstances when you are not sure about the direction of the stock market. The gains that one gets by using this strategy are somewhat unlimited, while the loss is restricted to the price of both sides of the contract.
- Long Strangle
In this strategy, the investor purchases a call and put option that has a similar maturity level but tends to have a different strike price. It has been observed that investors who are sceptical about the move of the market but know that it would rise exponentially tend to invest in this strategy.
- Butterfly spread
This strategy involves the use of both bull and bear spread strategy and makes use of different strike prices. Thus, it combines two different positions or contracts to come up with an effective solution.
- Iron Condor
This is one of the most complex strategies that can be used by the investors to earn a significant gain. It takes a long process to learn and requires significant practice to master the process.
- Iron Butterfly
In this, the investor combines either a long or short straddle along with the purchase and selling of the asset simultaneously. This strategy makes use of the both of the call and put options which are both limited within a specified within a certain range depending on the strike price.
Well, these were some of the main approaches that can be opted by the investors to earn profits on their assets. Always go for the one according to the demand of the market and the current situation of the stock market.