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One common criticism of options trading is that the strategies are risky. While there are highly risky strategies with massive drawdown potential, there are two strategies with less risk compared to buying 100 shares of stock.
The first option strategy less risky than buying stock is the covered call option strategy, which consists of selling a call option against 100 shares of stock that a trader owns. By selling the call against the shares, the trader collects option premium, which lowers the breakeven price and maximum loss potential of the position.
The second option strategy less risky than buying stock is the cash-secured put, which consists of selling a put option on a stock you’re able to buy 100 shares of with cash. By selling a put option, you keep 100% of the option premium collected if the stock price is above the put’s strike price at expiration.
In both cases, the option premium received reduces the loss potential relative to owning 100 shares of stock.
For comprehensive guides on these strategies, check out our strategy guide videos!
Covered Call Option Strategy:
Short Put Strategy:
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How to Price & Trade Options:
Option Volatility and Pricing:
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