calls
...rrent market price. Also known as a call sale, a buyer’s call gives the buyer the option to fix the price of the commodity by either purchasing a future from the seller or indicating to the seller a time in which the price of the transaction will be set. A buyer's call is used instead of buying the commodity on the spot market because of the possibility that its price will depreciate. Selling options allows an investor to add a revenue stream to his portfolio. The revenue is generated through the premium charged to the holder, for having the right to buy the option. For most investors, the primary objective of a covered writing is increased income through stock ownership. Covered Call Writing and Naked Call Writing are two basic call option selling strategies. Covered call writing is a strategy in which one sells a call option while simultaneously owning the obligated number of shares of the underlying stock. The position is covered because the obligation to deliver the stock is covered by the stock held in the portfolio. The seller of the option should be lightly bullish on the stock, or at least neutral. By writing a call option against a certain stock, one always decreases the risk of owning that stock. The covered call strategy works best for the stocks for which you do not expect a lot of upside or downside. Essentially, you want your stock to stay consistent as you collect the premiums and lower your average cost every month. Also, always remember to account for trading costs in your calculations and possible scenarios. Like any strategy, covered-call writing has advantages and disadvantages. If used with the right stock, covered calls can be a great way to reduce your average cost. If you write a Call option and own the stock that's called "Covered Call Writing." If you don't own the stock it's called "Naked Call Writing." Naked call writing is not the same as a short sale of stocks. Although both strategies have high risk factors, the short sale has a much higher reward potential versus the naked write, which has limited reward potential. On the other hand, if the underlying stock remains relatively unchanged, the naked write will do better. It is quite risky to write naked calls, since the price of the stock could zoom up and you would have to buy it at the market price. In fact, some firms will disallow naked calls altogether for some or all customers. That is, they may require a certain level of experience (or a big pile of cash). As can be seen, naked call writing (selling) is very risky and is ...