Known the Most Dangerous Options Trading Strategy

Today, I would like to discuss one of the most risky options trading strategies well known. I'll go through that strategy and then I'll give you the names of the two other strategies you want to stay away from, because each of them uses the risk trade within the strategy.

The option trading strategy with the highest risk to investors is known as short selling short or short call options. How this policy works is as follows:

1. You find a stock that you think will not have too much upside or volatility, also known as speculation. This should be your first sign that this strategy should not be used.

2. You sell a naked phone (which means you do not own the stock, but you are under an obligation to sell this particular stock at a future price at a predetermined price.

3. You receive a premium (meaning someone pays you the right to buy the underlying stock that you do not currently own from some time in the future).

4. Now, this is the strategy you can get UGLY! READ BELOW

Sell nude name calls (phone calls) are gambling. You get a premium for an investor so he has the right to buy it from the market or from you and who is cheaper. Consider the following example.

You sell one (1) naked card of ABC stock at an exercise price of $ 20. Your naked phone buyer pays you $ 3. (Okay, you're just $ 3 per contract, or $ 300.00) *

The current market price of the stock is $ 15

Sounds good so far? You have $ 300, the stock will have to move from $ 15 to above $ 23 ($ 20 Strike plus $ 3 Premium) before the person who holds the call will come to you and you will buy and sell the stock at market price and sell it to him Is $ 20. Well, just to let you know, because there is no upper limit, the price of the stock can climb and your risk is unlimited

Let's say you wake up one morning three weeks when you When you sell a naked phone just rose to $ 50 per share, the stock traded at $ 15. Well, guess, from where you buy the phone people doing? He knocked at your door outside and let you sell his stock for $ 20, so he could sell $ 65 in the market. You are now an ugly dilemma. You have to buy the stock for $ 65 and then go back and give up $ 20 to give you a $ 42 loss. (Your cost is $ 65 minus the $ 20 you're selling for $ 45 but remember, you've already paid $ 3, so your loss is $ 43 per share or $ 4300.00) OUCH !!

Now approved, it's an extreme example, but it's best not to sell naked phones so you do not get to the wrong side of the stock when you sleep.

* 1 (1) Therefore, the short-term options and short-term put options (short-term options and short-term put options will have different strike prices, ie 20 call options and 30 put options) If you receive $ 3 per contract, you will receive a premium of $ 300.00