Options Trading Strategies

These flashcards cover key concepts related to options trading, including types of options, their potential gains and losses, and hedging strategies.

Long Calls

Bullish investments providing the right to buy stock at a strike price.

Maximum Gain for Long Calls

Unlimited potential profit.

Maximum Loss for Long Calls

Amount paid as premium.

Breakeven for Long Calls

Strike price plus premium paid.

Short Calls

Bearish investments with obligation to sell at a strike price.

Maximum Gain for Short Calls

Premium received.

Maximum Loss for Short Calls

Unlimited potential loss.

Breakeven for Short Calls

Strike price plus premium received.

Long Puts

Bearish investments giving the right to sell stock at a strike price.

Maximum Gain for Long Puts

Strike price minus premium paid.

Maximum Loss for Long Puts

Amount paid as premium.

Breakeven for Long Puts

Strike price minus premium paid.

Short Puts

Bullish investments with obligation to buy at strike price.

Maximum Gain for Short Puts

Premium received.

Maximum Loss for Short Puts

Strike price minus premium received.

Hedging Strategies

Using options to protect stock positions from risk.

Long Stock Hedge

Long stock combined with long puts to limit risk.

Short Stock Hedge

Short stock combined with long calls to maintain risk limits.

Covered Call

Long shares combined with a short call to generate income.

Break-Even Price for Covered Call

Purchase price of stock minus premium received.

Opportunity Cost

Missed chance to profit from an investment.

Index Options

Options that derive value from index fluctuations.

Maximum Gain for Short Puts

Short sale price minus short put price plus premium received.