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Option Predictions

Long Straddle Predictions

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Long Straddle: Buying both a call and a put option, expecting a large price move in the underlying stock. Expected Profit: Unlimited based on stock movement of more than break even up or down, Expected Loss: (Call Premium + Put Premium) if stock stays within call strike price and put strike price by expiry date. Remember to use the "Chart" option to check prices regularly to determine closing the position.

Date: May 20, 2025

Symbol	Expiration Date	Option Type	Strike Price

Date: May 19, 2025

Symbol	Expiration Date	Option Type	Strike Price

Protective Collar Predictions

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A protective collar, also known as a collar option strategy, is an options trading strategy of buying 100 shares of the stock, selling a Out-of-Money call and buying an Out-of-Money put of the same stock. This strategy is often used by investors who have a stock position they want to hedge or protect from a decline in value but are willing to cap their upside potential in exchange for that protection.

Date: May 20, 2025

Secured Put Predictions

^{timeframe: expiry date}

A cash-covered put strategy, also known as a secured put, is a conservative options trading strategy where an investor sells a put option while simultaneously holding enough cash in their account to cover the potential purchase of the underlying stock if the option is exercised.

Date: May 20, 2025

Symbol	Expiration Date	Option Type	Strike Price	Action
TSLA	2025-09-19	PUT	240.00	Sell to Open	Chart

Option Learning

Predictions

Definition of an Option Straddle

An option straddle is an options trading strategy that involves buying or selling both a call option and a put option on the same underlying asset, with the same strike price and expiration date. This strategy is used by traders who anticipate a significant price movement in the underlying asset but are uncertain about the direction of that movement. The straddle profits if the price of the underlying asset moves significantly, either up or down, from the strike price, allowing the trader to capitalize on volatility.

Long Straddle: Buying both a call and a put option, expecting a large price move.
Short Straddle: Selling both a call and a put option, betting that the price will remain relatively stable.

Example of a Long Straddle

Suppose a stock is trading at $100 per share, and a trader believes the stock will experience a significant move after an upcoming earnings report, but they are unsure whether the price will rise or fall.

The trader buys a call option with a strike price of $100 and a premium of $5.
Simultaneously, the trader buys a put option with the same strike price of $100 and a premium of $5.

The total cost (or premium) for the straddle is $10 ($5 for the call + $5 for the put).

Scenarios:

If the stock rises to $120: The call option becomes in the money, with a profit of $20 from the call minus the $10 premium paid, for a net profit of $10. The put option expires worthless.
If the stock falls to $80: The put option becomes in the money, with a profit of $20 from the put minus the $10 premium paid, resulting in a net profit of $10. The call option expires worthless.
If the stock stays around $100: Both options expire worthless, and the trader loses the entire premium of $10.

Key Points:

The break-even points are calculated by adding and subtracting the total premium from the strike price. In this case:

Upper break-even: $110 (strike price + premium).
Lower break-even: $90 (strike price - premium).

The strategy benefits from volatility, and the larger the price move (up or down), the higher the potential profit.

What Are Stock Options?

Stock options are financial derivatives that giv= e investors the right, but not the obligation, to buy or sell a stock at a predetermined price (called the strike price) within a specified time period. Options are used by investors to hedge aga= inst risks or to speculate on the price movements of underlying stocks without actually owning the stocks.

There are two types of stock options:

Call Options: Give the holder the right to buy a stock at the strike pri= ce.
Put Options: Give the holder the right to sell a stock at the strike price.

Each options contract typically represents 100 shares of the underlying stock.

Key Terminologies in Options Trading

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Strike Price: The price at which the option holder can buy (in the case of a call) or sell (in the case of a put) the underlying stock.
Premium: The price paid by the buyer of the option to the seller for the rights that the option provides.
Expiration Date: The date by which the option must be exer= cised or it will expire worthless.
In-the-Money (ITM): A call option is ITM when the stock price is higher than the strike price. A put option is ITM when the stock price is below the strike price.
Out-of-the-Money (OTM): A call option is OTM when the stock price is lower than the strike price. A put option is OTM when the stock price is above the strike price.
At-the-Money (ATM): The stock price is equal to the strike price for both calls and puts.

How Stock Options Work

Call Option Example:

Suppose you buy a call option with a strike price of $100, and the stock is currently trading at $90. You pay a premium of $5 per share (so $500 for one contract). If the stock price rises to $120 by the expiration date , you can exercise the option and buy the stock at $100, then sell it for $120, making a profit of $20 per share (minus the $5 premium).

Put Option Example:

Suppose you buy a put option with a strike price of $100, and the stock is currently trading at $110. You pay a premium of $4 per share ($400 for one contract). If the stock price drops to $80 by the expiration date, you can sell the stock at $100 and buy it back at $80, making a profit of $20 per share (minus the $4 premium).

Pointers When Using Options

Leverage: Options allow you to control more shares with less capital compared to buying the underlying stock, but leverage also increases risk.
Risk Management: Options can be used for hedging to protect your portfolio from downside risk (e.g., buying put options as insurance).
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Time Decay: Options lose value as they approach the expiration date (known as theta decay), so timing is crucial in options trading.
Volatility: Options prices are sensitive to changes in market volatility. High volatility increases option premiums, while low volatility decreases them.
Greeks: In options trading, the Greeks (Delta, Gamma, Theta, Vega, Rho) measure different aspects of risk, such as sensitivity to price changes , time decay, and changes in volatility.

Summary

Stock options provide versatile strategies for both speculation and risk management. However, they can be complex and involve significant risks, so it's important to fully understand how they work befor e trading. Different strategies, such as covered calls, protective puts, and i ron condors, allow you to tailor your approach depending on market conditions an d your risk tolerance.

Common Option Trading Strategies

1. Covered Call

What it is: Involves holding a long position in a stock and selling a call option on the same stock.
When to use it: This strategy is used to generate income from an existing stock position in exchange for potentially selling the stock at the strike price.
Risk: If the stock's price rises sharply, you may be forced to sell your stock at the strike price, which could result in missing out on further gains .

Example: If you own 100 shares of a stock currently trading at $50 and sell a call option with a strike price of $55, you collect the premium. If the stock price stays below $55, you keep the premium and th e stock. If it rises above $55, you may have to sell the stock at that price, but you still keep the premium.

2. Protective Put (Married Put)

What it is: Involves holding a long position in a stock and buying a put option to hedge against potential losses.
When to use it: This strategy is used when you want to protect your stock from a decline in price while still retaining ownership.
Risk: You lose the premium paid for the put option if the stock does not decline.

Example: If you own 100 shares of a stock currently trading at $100 and buy a put option with a strike price of $95, you are protected from any significant drop below $95. If the stock falls to $85, you can sell it at $95, limiting your loss.

3. Straddle

What it is: Involves buying both a call option and a put option on the same stock with the same strike price and expiration date.
When to use it: This strategy is used when you expect a significant price movement in the stock, but you‚Äôre not sure in which direction.
Risk: You lose the premiums paid for both the call and the put if the stock does not move significantly.

Example: If a stock is trading at $100, you buy a call and a put option both with a strike price of $100. If the stock rises t o $120 or falls to $80, you can profit from either the call or the put. If the stock stays around $100, you lose both premiums.

4. Iron Condor

What it is: A more complex strategy that involves selling an out-of-the-money call and put while simultaneously buying a further out-of-the-money call and put.
When to use it: This is a non-directional strategy used when you expect low volatility and the stock to trade within a specific range.
Risk: You can lose the difference between the strikes minus the premiums collected.

Example: If a stock is trading at $100, you sell a $105 call and a $95 put while buying a $110 call and a $90 put. If the stock stays between $95 and $105, you keep the premiums collected.

5. Bull Call Spread

What it is: Involves buying a call option at a lower strike price and selling a call option at a higher strike price.
When to use it: This strategy is used when you expect a moderate rise in the stock price.
Risk: The maximum loss is the net premium paid.

Example: If a stock is trading at $50, you buy a call with a $45 strike price and sell a call with a $55 strike price. If the stoc k rises to $55, you profit from the difference between the two strike prices, minus the premium paid.

Protective Collar Strategy

Predictions

A protective collar, also known as a collar option strategy, is an options trading strategy designed to protect an existing long position in an asset from significant downside risk, while also limiting potential gains. This strategy is often used by investors who have a stock position they want to hedge or protect from a decline in value but are willing to cap their upside potential in exchange for that protection.

The protective collar consists of two options:

Buying a put option: This provides downside protection. If the stock price falls below the strike price of the put option, the investor has the right to sell the stock at the strike price, thus limiting the loss.
Selling a call option: This generates income to offset the cost of buying the put option. However, it limits the upside potential, because if the stock price rises above the strike price of the call option, the stock could be called away, forcing the investor to sell at the strike price.

How It Works:

Objective: To limit losses (protection from downside risk) while giving up some potential for gains (capping upside).
Example:

Suppose an investor owns 100 shares of a stock trading at $50.
The investor buys a put option with a strike price of $45, giving them the right to sell the stock at $45 (downside protection).
At the same time, the investor sells a call option with a strike price of $55, which means they must sell the stock if it rises to $55 or higher (capping the upside).

If the stock price falls below $45, the put option provides a safety net. If the stock price rises above $55, the call option gets exercised, and the investor must sell the stock at $55, limiting further gains.

Benefits and Risks:

Benefits:

Reduces downside risk, limiting the potential loss.
The sale of the call option offsets some or all of the cost of the put option.

Risks:

Limits the upside potential since the investor must sell the stock if it exceeds the call option's strike price.
If the stock remains in a narrow range, the investor may not see significant gains but still incurs the cost of the strategy.

The protective collar is commonly used when an investor is cautious about the stock’s short-term future but doesn't want to sell the stock entirely.

Option Greeks

Predictions

Option Greeks are financial metrics used to measure the sensitivity of an option's price to various factors. These factors include changes in the underlying asset's price, time to expiration, volatility, and interest rates. The five primary Option Greeks are:

Delta (Δ):

Measures the sensitivity of the option’s price to changes in the price of the underlying asset.
A delta of 0.5 means that for every $1 increase in the underlying asset's price, the option's price will increase by $0.50.
For calls, delta is positive (between 0 and 1), and for puts, delta is negative (between 0 and -1).

Gamma (Γ):

Measures the rate of change of delta with respect to changes in the underlying asset's price.
It indicates how much delta will change for each $1 move in the underlying asset's price.
Gamma is highest for at-the-money options and decreases as options become in-the-money or out-of-the-money.

Theta (Θ):

Measures the sensitivity of the option’s price to the passage of time, also called time decay.
Theta represents the amount by which the option’s price will decrease as it gets closer to expiration (all else being equal).
Both calls and puts tend to have negative theta, meaning their value erodes as time passes.

Vega (ν):

Measures the sensitivity of the option’s price to changes in the volatility of the underlying asset.
A higher vega indicates that the option price will increase more for a rise in volatility.
Options with more time until expiration tend to have higher vega values.

Rho (ρ):

Measures the sensitivity of the option’s price to changes in interest rates.
A positive rho for call options means their price will increase as interest rates rise, and for puts, rho is typically negative.

These Greeks are used by options traders to manage risk, hedge portfolios, and make informed trading decisions.

Why do I learn Option Greeks

Predictions

Understanding Option Greeks is essential for anyone involved in options trading because they provide insight into how the value of an option may change under different market conditions. Here's why it’s important grasp them:

1. Risk Management

Delta helps you understand your directional exposure. If you are long a call option with a high delta, your position behaves more like the underlying stock, so you need to be aware of how changes in the stock price will affect your option's value.
Gamma helps manage sudden changes in delta. A high gamma can signal that small changes in the underlying asset's price could result in significant fluctuations in delta, leading to large portfolio value changes.
Theta informs you about how quickly time decay is eroding the value of your options. If you're holding options, especially short-term ones, it's crucial to monitor theta to avoid losing value purely due to the passage of time.
Vega allows you to assess how sensitive your options are to volatility changes. If volatility is expected to increase, an option with high vega will gain in value, whereas it could lose value in low volatility environments.
Rho helps assess the impact of interest rate changes, though it’s mo relevant for long-dated options or during periods of significant rate changes.

2. Making Informed Trading Decisions

Option Greeks help in understanding whether an option is priced fairly based on your market view. If you anticipate changes in the underlying asset, volatility, or interest rates, the Greeks can help predict how those changes will affect the option’s price. For example, if you expect the underlying asset’s price to rise but the ption has a low delta, it might not respond as strongly to price changes as expected, affecting the potential profitability of the trade.

3. Hedging and Portfolio Adjustments

By understanding how different Greeks interact, you can create strategies that hedge against unwanted risks (e.g., reducing delta exposure to minimize sensitivity to the underlying stock’s movements, or hedging vega if you’re exposed to volatility).
Greeks provide a detailed view of the sensitivities of your option positions, allowing you to tailor your hedges more effectively.

4. Maximizing Profitability

Traders use Greeks to optimize their strategies. For example, during periods of high volatility, a strategy that benefits from high vega can be more profitable. Similarly, if you are expecting quick price movements in the underlying stock, a high delta position could yield higher returns.

5. Better Strategy Selection

Greeks help in choosing between various options strategies (e.g., straddles, iron condors, covered calls). Depending on your forecast for price movements, volatility, and time until expiration, you can select a strategy that matches your risk tolerance and profit expectations.

In summary, understanding Option Greeks allows you to:

Manage and reduce risk effectively.
Make better-informed trading decisions.
Fine-tune your options strategy based on market conditions.
Protect your portfolio and maximize potential profits while minimizing unwanted exposures.

Cash Secured Put Strategy

Predictions

A cash-covered put strategy, also known as a secured put, is a conservative options trading strategy where an investor sells a put option while simultaneously holding enough cash in their account to cover the potential purchase of the underlying stock if the option is exercised.

How It Works:

The investor sells a put option, giving the buyer the right to sell the underlying asset (usually 100 shares) to the seller at a specified strike price before the option's expiration date.
Unlike a naked put strategy, in a cash-covered put, the seller sets aside enough cash in their account to buy the stock if the option is exercised. This reduces the risk associated with the trade, as the investor is prepared to purchase the stock at the strike price.

Key Scenarios:

If the stock price stays above the strike price:
The put option will likely expire worthless, as the buyer won't exercise the option. In this case, the seller keeps the premium as profit, and the cash remains unused.
If the stock price drops below the strike price:
The buyer may exercise the put option, requiring the seller to buy the stock at the agreed-upon strike price. In this scenario, the seller uses the cash set aside to purchase the stock. The seller's effective purchase price is the strike price minus the premium received, so even though the stock may have dropped, the seller gets it at a lower net cost.

Profit and Loss:

Profit: The maximum profit is the premium received from selling the put option. This occurs if the stock stays above the strike price and the option expires worthless.
Loss: The maximum loss occurs if the stock price falls to zero. In that case, the loss would be the difference between the strike price and zero, minus the premium received. However, because the investor has cash set aside to cover the purchase, the risk is less than a naked put, though there is still downside exposure.

Example:

You sell a put option on stock XYZ with a strike price of $50 and receive a premium of $2 per share. You also set aside $5,000 (50 × 100) in your account to cover the purchase of 100 shares if needed.

If XYZ stays above $50 until expiration, the put option expires worthless, and you keep the $200 premium.
If XYZ drops to $45, the buyer may exercise the option, and you're obligated to purchase 100 shares at $50, despite the market price being lower. Your effective purchase price would be $48 ($50 strike price - $2 premium), meaning you buy the stock at a discount compared to someone purchasing it at $50.
If XYZ drops to $30, you're still obligated to buy the stock at $50, and after accounting for the $2 premium, your effective cost basis would be $48 per share. You would incur an unrealized loss of $18 per share ($48 - $30), or $1,800 in total for 100 shares.

Key Considerations:

Risk: While a cash-covered put carries less risk than a naked put, there is still downside exposure if the stock falls significantly. However, by having the cash ready to purchase shares, the investor mitigates the risk of having to buy the stock without the necessary capital.
Income generation: This strategy is often used by income-oriented investors who are willing to buy a stock at a lower price (via the strike price) and collect the premium in the meantime. It can be an effective way to potentially acquire shares at a discount while generating income from option premiums.

Ideal Use:

A cash-covered put is typically employed by investors who:

Are neutral to bullish on a stock and are comfortable owning it at a lower price (the strike price).
Want to generate income from the premiums received.
Are risk-averse, preferring a strategy that ensures they can cover their obligation if the option is exercised.

By using a cash-covered put, investors can create a potential buying opportunity at a price they're comfortable with while earning a premium upfront.