Covered Combination Strategy…
The Covered Combination strategy comes into play when dealing with classic warrants. At the same time a call out of the money (from the money) and a put with the same expiration time are sold. Accordingly, it is a combination of covered call and short put. Investors already receive a profit through the sale of both positions (call and put). In work sneak a peek here doing so, however, he takes the risk of doubling the position of a share.
For example, if a stock has a value of $ 30, the investor can sell a call for $ 33 while selling a $ 28 bid. Covered Combinations are traded primarily by investors who do not take a great risk and want to stock up on stocks at low prices should the price drop. Covered Combinations web have are also used to increase the return on the portfolio without taking a major risk. In addition, the Covered Combinations are a good option for investors if they are not quite sure whether it is the right time to raise stocks. Thus, investors can buy only half of the positions and later get a more favorable price through a pullback.
The following scenarios are conceivable for the Covered Combination, depending on how the equity value develops:
- If the share price exceeds the exercise price, the short put will expire worthless and the shares must be sold at the exercise price. Nevertheless, the call and put sales made a profit recommended reading him
- If, on the other hand, the share browse around this website so closes at a lower price, the short put will also worthless, but the allotment can be expected to be sold, which is why investors have to buy the shares. This will be paid to the put exercise price minus the profit for the options sold.
Both options expire worthless when the share closes between the price of call and put and the investor gets the profit from the call and put. This reduces the cost of the share package and the profit threshold is exceeded if the investor continues to hold the shares.
If the stock price goes over the call and at the same time under the put, the call and put can be executed more tips here way before the actual process. This premature implementation is always recommended when the short-call in the money, the price is lower than the profit. With the Put, the early implementation makes sense if the price has little or no time value.
An investor would like to buy 200 shares with a market value of $ 50 because he expects to lose value soon and is now using the Covered Combination strategy. Instead of buying 200 shares, the investor orders only half and places a put (about $ 55) to sell the shares. At the same go now out time, a call is set. The share price moves below $ 50. For the call and put, a time frame of 90 days is then set.
In the application of the Covered Combination strategy, it is advisable to ask a tax consultant for advice as there are no commissions, dividends, transaction costs and taxes in talks about it any the current model calculations. These can affect the control load.
Graphics: Covered Combination:
The Covered Combination strategy combines the advantages of two strategies: the combination of a covered call and a covered put. Investors who choose this strategy want to have a certain number of shares. However, the investor buys only half, and then sells call and put, while at the same time buying another share package from the short put. Later, the investor can sell the shares at a better price or double the number of shares. This not only increases the profit, but also quickly reaches the profit threshold.
Compared to other strategies, the profit web two chance is lower in the case of the covered combination, but this also decreases at the same time