This strategy can work well when a major anticipated decision is about to be made for the stock: buy-back program, law suite, new technology, earnings reports, presidential election. When is it used?Call option writing is used by investors to generate additional income. For example: Buy XYZ June 30 Puts and buy XYZ June 30 Calls. Fundamentally, the call writer will profit when the stock price remains at or below the strike price as the call will expire worthless while the investor keeps the premium.

How to choose the Strike Price?The strike prices used will depend on how bearish an investor is. The stock starts to trade down and finishes at $26.00. Picking a stock or group of stocks is only half the battle.

If theoption is going to expire in-the-money and you want to keep thestock you will need to buy the short option back and sell thenext months call. The directional play is a good place to start our discussion of option strategies. A collar is an options strategy that combines the use of a covered call and a protective put in order to contain your risk and your reward between two bounds. While it is true that the at-the-money option has the mostamount of extrinsic value, it might not always be the idealoption to sell in every situation. Normally time spreads have a neutral basis but they can also be designed for a bullish or bearish basis.

You do this by your choice of which optionyou sell. They can buy different amounts of Calls and Puts with different Strike Prices or Expiration Dates, modifying the Straddles to suit their individual strategies and risk tolerance. Of course, there is no choice as to the front month option, youmust buy back the option you are short. Note that there are various forms of straddles, but we will only be covering the basic straddle strategy.

And remember - it's always good to start with pretend trades to get the hang on things, before you commit your life savings to the market. The term roll means to move your position either out to thenext strike or to move your position up or down a strike in thesame month. The straddle strategy is an option strategy that's based on buying both a call and put of a stock.

This is the price where a stock price must go above (for calls) or go below (for puts) before a position can be exercised for a profit. In essence, the call acts as insurance against an increase in the price of the stock. This provides you with the option premium while your maximum risk is strike price of the option minus the premium received. This can be time consuming, but at least you can then make a logical comparison of the choices and decide which one has worked best for you.

Every day we see evidence of stocks that have flown upwards as if they had wings, providing investors with a windfall of profits.

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