Analysis of Asset Allocation

Financial Tutorial
 

 Did you Know?
Futures contracts also have a price: click here to know how to compute it..

Options: Basic Strategies - Limited Risk

LONG CALL

To be used when a sharp increase of the underlying security price is expected.
Maximum risk: limited to premium paid.
Maximum profit: unlimited.

 

SHORT CALL COVERED BY UNDERLYING

To be used when a stabilization of the underlying security price is expected.
Maximum risk: limited to loss of profit due to increase of the underlying security price. Even if the risk is covered because you don't need the repurchase the security if you are assigned, the potential loss if the security price increases is unlimited.
Maximum profit: limited to premium received.

LONG PUT

To be used when a sharp decrease of the underlying security price is expected. Long put can be used as a protection if you have the security in the portfolio or as a speculative position if not. Long put on index are often used to protect a well diversified portfolio.
Maximum risk: limited to premium paid.
Maximum profit: unlimited.

Go to: Top of page - Next Topic - Option Index - Home

All information are subject to terms of use
Copyright 2001-8 Sunilcare,. All Rights Reserved.
Sunilcare Group sites: English HTMLFORALL / French ANALYSE des Avoirs Relax energie
Comments or suggestions? Contact the webmaster. View our Privacy Policy. Labeled with IRCA