Options Trading Strategies - The Bull Call Spread Method
Options Trading Strategies - The Bull Call Spread Method
Too many traders stay away from options trading strategies because they just don't understand them . If you would like to become a better trader and make the most out of you investment dollar by limiting you risk, learning some of the options trading strategies can help you do just that. In this article we will take a look at the "bull call spread method" of trading options.
An option is nothing more than a contract between a broker and a trader, giving the trader the right or option to buy or sell equities at an agreed upon price and a specified length of time for a fee , anywhere from 21 days to over a year. For instance: You may pay a $100 premium for the call option on GE at 35 for 6 months and 10 days. (This is the most popular length of time because any profits made from that length are considered long-term capital gains and taxed at 25%) Let's say GE's stock goes up and starts trading at 45 before your option expires. You then exercise your option and realize a gain of $900. A gain of $10 a share, 100 shares =$1000-$100 premium = $900 net gain.
The bull call spread method favors a bull market, or an upward trend. This method will require you to buy a lower strike (price) call and writing a higher strike call at the same time. The lower strike call has a better chance of being worth more because of the bullish trend in the market. You will write a higher short call to protect yourself from unfavorable swings in the market.
Example:
Long 1 September corn 350 call for 152
Short 1 September corn 400 call for 56
Days till expiration 33
Net premium 152-56=96 cents (9.5cents)
10(1 cent) in corn =$50
Net premium in $ value is 9.5 cents *$50/tick=$475
This method can be highly effective in maximizing profits and limiting risk . Hopefully you can realize the power of this sort of strategy and the unlimited potential of options trading.
Although trading options is a powerful tool to have on your side, please take the time to fully understand any new trading strategy before using your hard earned money in the real market. Ask a trusted advisor if you have any question and be sure you know both the potential and the risks involved with any investment or trading strategy.
Visit Mr. Closson's website to learn more about options trading strategies and while you are there, sign up for his news letter where you'll get the latest in Forex trading system reviews as well as helpful strategies designed to help you get the most out of every trade. http://www.reviewforextradingsystems.com