Usage scenarios

When you don't expect the stock price to rise or fall moderately in the future, you can choose to sell call options to earn premium income.

Strategy brief

Selling calls is one of the four most basic types of options trading.

Bareback is a trade with limited returns and unlimited potential losses. The profit of selling calls is option money. When the stock price rises rapidly by more than a certain range, there will be a loss. Theoretically, there is no room for stock prices to rise, so the potential loss of selling calls is also limitless.

Sounds like a trade with limited returns but unlimited potential losses should be unpopular. However, since option sellers are friends of time, the passage of time is beneficial to option sellers, and if you sell a call with a reasonable price, the probability of making a profit is not low.

When choosing the exercise price, you can choose the strong pressure level of the stock price. When choosing the expiration date, it is more beneficial for the seller to choose options to sell within 1 month. In addition, you should also pay attention to the choice of implied volatility and select Call to sell with a relatively high implicit rate. If the subsequent stock price trend is moderate, a decrease in volatility will also benefit Call sellers.

Risks and benefits

● Break-even point

Stock price = exercise price+option premium

● Maximum profit

Maximum return = premium

● Maximum loss

The maximum loss is unlimited

Examples of calculations

Assuming that in the US stock market, TUTU's current stock price is 50 US dollars, you expect TUTU to fall moderately in the future market, so sell a call with an exercise price of 52 US dollars and an option fee of 5 US dollars. The option expires after 1 month. So, at the time of expiration, your earnings will be as follows:

Remarks:

1. The article uses stocks as option targets to explain. The actual investment bid can also be a stock index, futures contract, bond, currency, etc.;

2. Unless otherwise specified, the options in this article all refer to US market options;

3. The TUTU company in the article is a virtual company;

4. The relevant calculations in this article do not take into account handling fees. In actual options investment, investors need to consider transaction costs.