Buying out of the money calls is strategy that most educated option traders center their investments around?
1. False
2. True
Buying options with a low probability of success usually result in few wins, not something educated investors center their trading around.
If you buy a 40-strike price put for $2.75 when the stock is trading $48 and the stock trades down and closes at $42 at expiration, what would be your profit/loss on the trade?
1. $2.75 loss
2. $3.25 profit
3. $0.75 profit
The stock would have to go under $40 for you to generate any money on this trade, because it closed at $42, your entire investment of $2.75 would be lost.
You own an XYZ 50-strike price call option, and lucky you, the stock traded up to $60 on expiration Friday. Here you would be long one in the money option. If you do not want to take a position in the stock it’s best to?
1. Buy an XYZ 50 strike price put option to cancel out the call option
2. Sell an XYZ 50-strike price call
3. Sell 100 shares of XYZ stock
Never use puts to take off calls and vice-versa, if want to eliminate any long position you sell the exact position. To eliminate any short position you buy that exact position.
