You can use option chains to generate income in a variety of ways. Two of the most popular strategies are covered calls and cash-backed puts. Target calls:
A covered call is an options strategy in which the seller (option writer) owns the underlying asset and sells a call option on that asset. The seller of the call receives a premium for selling the option and is obligated to sell the underlying asset to the call buyer at the strike price if the option is exercised. Check here for more on demat account kaise khole?
Covered calls are a great way to earn income from stocks you already own. It is also a good way to hedge against a decline in the price of the underlying asset.
To place a covered call, you must:
Select the stocks you own and want to sell at the call option strike price. Select a call option with a strike price higher than the current stock price. Sell a call option. When you sell a call option, you receive a premium. Check here for more on demat account kaise khole? Premium is the amount the call buyer pays you for the right to buy the underlying asset from you at the strike price on or before the option’s expiration date.
If the stock price remains below the call option’s strike price at expiration, the option expires worthless and the premium remains. Check here for more on demat account kaise khole? However, if the stock price rises above the call option’s strike price at expiration, the option buyer can exercise the option and you are obligated to sell the underlying asset at the strike price.
Cash-backed put:
A cash-backed put is an option strategy in which the seller (option writer) holds enough cash in a brokerage account to purchase the underlying asset at the put option’s strike price if the option is exercised. Check here for more on demat account kaise khole? The seller receives a premium for selling a put option and, if the option is exercised, is obligated to purchase the underlying asset from the put buyer at the strike price.
Cash-secured puts are a good way to generate income from stocks that you would like to own at a lower price. They are also a good way to hedge against a decline in the price of the underlying asset.
To execute a cash-secured put, you will need to:
Choose a stock that you would like to own and that you are willing to buy at the strike price of the put option. Select a put option with a strike price that is below the current price of the stock. Sell the put option. Check here for more on demat account kaise khole? When you sell a put option, you receive a premium. Premium is the amount the put buyer pays you for the right to sell the underlying asset at the strike price on or before the option’s expiration date. In this way, you can make out how things work for option chain trade. So, best of luck with your venture!
