Strategies

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Weekly Strategy Discussion

The Weekly Strategy Discussion is designed to assist individuals in learning how options work and in understanding various options strategies. Options involve risk and are not suitable for all investors. The strategies discussed are for educational and illustrative purposes only, and should not be construed as an endorsement, recommendation or solicitation to buy or sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.

Buying a Weekly Call

Example:                 XYZ stock is trading $50 

Outlook:                  You are short-term bullish on XYZ stock and would like limited downside risk.

Possible Strategy:   Buy one 60 day XYZ 50 strike call at $3.00

 

*All values shown are at the time of expiration. Commissions and other trading fees not included.

Stock

Long 60 Call

Long 60 Call

Initial Cost

Net Profit (Loss)

40

0

(3.00)

(3.00)

45

0

(3.00)

(3.00)

50

0

(3.00)

      (3.00)

55

5

(3.00)

 2.00

60

10

(3.00)

 7.00

 

 

At Expiration:

  • Maximum Gain = Unlimited
  • Breakeven = Strike Price + Premium Paid
  • Breakeven = $53
  • Maximum Loss = Total Premium Paid
  • Maximum Loss = $300    

In Summary: Weekly options are best suited for short term strategies. The purchase of a weekly call option is a possible strategy if you anticipate a rally in the stock. When buying weekly options, consideration to accelerated time decay and possible changes in implied volatility must be understood. Risk is limited to the total premium paid.  Profit potential is theoretically unlimited. 

CBOE Volatility Index (VIX)