Strategies in Trading Options Contracts

Options contracts help buyers specifically determine the maximum level of risk when participating in the market; use trading strategies, combine multiple transactions together to limit both risk and profit within a certain range.

To trade options contracts effectively, there are many different strategies that investors can use. In this issue, Cong Thuong Newspaper will answer readers' questions related to popular strategies in trading options contracts.

Protective Puts Strategy

This strategy is implemented by purchasing a put option on an underlying asset that the investor owns. If the price of the underlying asset is higher than the strike price, the option will not be exercised. In this case, the investor pays the option premium. However, if the price of the underlying asset is lower than the strike price, the investor may have to sell the underlying asset at the strike price.

This strategy is used in a bullish market scenario and the investor wants to protect their profits.

For example: An investor buys 1 standard wheat futures contract, expiry date September 2024 at a price of 100 USD.

At the same time, buy a put option on 1 wheat futures contract for July 2024 at a strike price of $100, the option premium is $5.

If the price of wheat rises to $110, the investor makes a profit on the standard $10/contract futures position and the option is not exercised. The investor will lose $5 of the option premium. The investor's total profit is $10 - $5 = $5

Conversely, if the price of wheat falls to $93, the investor loses on the standard $7/contract futures position, but gains on the $7 call option position. Therefore, the maximum loss is $5.

Covered Call Strategy

This strategy is executed by selling a call option on an underlying asset that the investor owns. If the price of the underlying asset is below the strike price, the option will not be exercised, allowing the investor to keep the option premium. However, if the price exceeds the strike price, the investor may have to sell the underlying asset at the strike price, potentially missing out on additional profits.

This strategy is used in neutral to slightly bullish market scenario.

For example: An investor buys 1 standard wheat futures contract for September 2024 at a price of $100.

At the same time, sell a call option on 1 wheat futures contract for July 2024 at a strike price of $100, with an option premium of $5.

If the price of wheat falls to $93, the investor loses money on the long position of the standard futures contract at $7 per contract and the option is not exercised. The investor holding the short position receives $5 in option premium. The total loss for the investor is $7 – $5 = $2.

Conversely, if the price of wheat rises to $103, the investor gains $3 per contract on the standard futures contract and loses $3 on the short option position. The investor holding the short option position receives $5 in option premium. The total investor gains $3 + $5 - $3 = $5.

Source: https://congthuong.vn/hoi-dap-giao-dich-hang-hoa-so-66-cac-chien-luoc-trong-giao-dich-hop-dong-quyen-chon-321680-321680.html