Although there are many very complicated option trading strategies, a simple option trading strategy can allow you to limit downside risk. Identify stocks with bullish charts that are about to release earnings. Buying call options prior to earnings release allows you to capitalize if the stock reports good earnings, but limits your loss if it does not. Look for a strike price just above current stock price with a premium of less than 4%. There are times when a more expensive premium is warranted, but this is not the normal.
- A basic options earning strategy unlike complicated strategies can help one capitalize on a bullish earnings report while downplaying risks.
- A call option strategy for buying stock helps you avoid losses on a bullish trend by buying stocks at a predetermined price.
- The strategy works by avoiding stocks that tend to have a bullish trend, and also avoiding extended stocks that are too far past their entry points.
“A call option is a bullish bet on a stock. A put option is a bearish bet. One call-option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price. A put-option contract gives the holder the right to sell 100 shares of a stock at a specified price.”