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Long & Short Calls |
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Long Call
The more a bullish trader you are, the more out–of-the-money (higher) should the option be. No other position gives as much leveraged advantage in a rising market as this one. The profit grows as the market rises. At expiration, the break-even point will be the option strike price plus the price paid for the option. For each point above the break-even, the profit increases by a further point. The loss is limited to the amount paid for the option. Maximum loss occurs should the market end below the strike price. For each point above the strike price, the loss diminishes by an additional point. As time goes by, the value of the position erodes towards the expiration value. If instability increases, attrition slows; as volatility decreases, attrition speeds up.
Short Call
This should be used if you are definitely certain that the market is not going up. If you are absolutely convinced that the market will stagnate or fall, sell at-the-money options. If you believe the market will fall sharply, sell–in-the-money options for maximum profit. If you aren’t 100% sure of this, sell out-of-the-money (higher strike) options. The profit is limited to the premium received. At expiration the break-even point is the strike price plus the premium received. Maximum profit is reached if the market settles at or below the strike price. The loss increases as the market rises. At expiration, the losses increase by one point for every point the market is above the break-even. Because this involves open-ended risk, the position must be watched closely. The position is a growing asset. The value of the position increases as the option loses its time value. The maximum rate of increasing profits occurs if the option is at-the-money.
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| Symbol |
Rate |
| GBP:CHF |
1.747703 |
| GBP:JPY |
155.484239 |
| GBP:USD |
1.638403 |
| NZD:USD |
0.627050 |
| EUR:CAD |
1.545998 |
| EUR:CHF |
1.516857 |
| EUR:GBP |
0.867915 |
| EUR:JPY |
134.947096 |
| EUR:USD |
1.421994 |
| AUD:JPY |
76.394373 |
| AUD:USD |
0.805000 |
| USD:CAD |
1.087204 |
| USD:CHF |
1.066711 |
| USD:JPY |
94.899879 |
| USD:SEK |
7.613010 |
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Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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© ForexCenter.com, 2005, All Rights Reserved
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History