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Put Option Selling For Highest Gains

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Put Option Selling For Highest Gains Powered By Docstoc
					In the market of currencies,options, stocks and futures there's a single tool which is
the most adaptable and that is stock options. The range of missions of both call or put
options are immense. It is a point in fact however that this has also a negative side
effect. Whenever you are working with financial derivatives and ever-changing
factors there's the chance that funds are going to be lost rather than gained.
  Although a lot of investors and traders are lured by the high yield rates which are
possible with options people often neglect to have a rather close look at the overall
performance of calls and puts. Those who have been in the stock trading business for
a while would let you know upfront that up to eighty percent of all stock options turn
out to be worth nothing whenever they expire. Mostly, these are the stock option
buyers who suffer a loss of the invested money. But the flip side of the coin is options
sellers generally are making revenue. The covered call strategy is one way of
combining a stock buy with the selling of a call option. Selling put options is another
tactic that you can utilize.
  When going for put option selling strategy as an option trader you need to make sure
you totally understand what's happening. First of all its essential to know that puts are
generally there to protect the losses of a stock should the price of a stock plunge. If
this should occur even though the stock will lose value the put will actually gain in
value. Your stock is then secured or hedged, as it is called. Essentially it is an
insurance against losing stock and you will pay a premium of around 10% of the
amount you are investing.
  If you change the sides and begin to offer puts you must understand what probable
cases could occur. First, the put seller is getting the premium for the put option. There
are a number of factors that come into play that will determine how much that is and
they include things such as the underlying of the put and the volatility of that
underlying and the duration of the put.
  You definitely don't wish to take too lightly the risks involved in selling puts. In
order to keep the risk low you need to begin to sell "out of the money" puts. There the
premium is lower but the potential risk of the put to get "in the money" is lower also.
Moreover, one must do his research and assess which stocks are constant and likely to
rise in future so that he can easily market puts on these stocks with a higher possibility
of pocketing the premium.

 You certainly don't wish to underrate the potential risks involved in selling puts. Out
of the money puts are a great method to begin and lower your risks as these are
known option trading strategies used by the pros. There the premium is lower but the
potential risk of the put to get "in the money" is lower also. Smart analyzing and
investigation is called for in order to completely understand which stocks and options
will likely rise and tend to be stable which is also a general strategy in the case of
doing stock investing. These are the ones you wish to sell puts for and will have a
higher chance of earning premiums.

				
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posted:2/25/2011
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