Remember when you sell an option you seek to capture extrinsicvalue. If you choose to roll the positionthen you must be somewhat bullish on the stock. Say Google (GOOG) in one month is now trading at $450:. At expiry, as long as the Apple (AAPL) is trading above (120 6 = $114) you have made a profit. The effect ofthis would be to provide you with a little extra premium tocover more downside risk. An investor is willing to accept a larger risk in exchange for the option premiums received.For example: write XYZ June 20 Puts and Write XYZ June 30 Calls. The reality, however, is that there are no keys that will find a winner every time. So an option expiring this month will have a cheaper premium than an option with the same strike price expiring next year. For example, lets say the stock is trading at $27.00. This strategy is implemented by short selling a stock and writing (selling) an equivalent number of put options on that stock. If you purchased the puts your profit woul d be ($500 + $15 - $450) * 100 = $6500. On the other hand, if the price of the stock decreases, then the value of the put increases by one dollar for each dollar drop in the stock price below the strike price. An investor feels the stock will remain at or very near to the strike price. As you can see, the buy-write strategy can be altered to fit anydirectional view you have on your selected stock. Did you understand this article? Are you lost but would like to try and understand? Daniel Beatty understands and has created a website to help you understand. However, you need to consider other aspects of the options price like volatility. In the case of Straddles, you will be safe either way, though you are spending more initially since you have to pay the premiums of both the Call and the Put.
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