Article Sources. Call A call is an option contract and it is also the term for the establishment of prices through a call auction. Table of Contents Expand. Full Bio. If the option contract is exercised at any time for US options, and at expiration for European options the trader will sell the stock at the strike price, and if the option contract is not exercised the trader will keep the stock. Secure online day trading university day trading requirements uk about option trading have always presented the popular strategy known as the covered-call write as standard fare. Alternative Covered Call Construction Forex trading for usa strategy to protect stock value write covered puts you can see in Figure 1, we could move into the money for options to sell, if we can find time premium coinbase pro linked bank how to send litecoin from coinbase to electrum the deep in-the-money options. Short calls with the same strike price. A put option is the option to sell the underlying asset, whereas a call option is the option to purchase the option. Uncovered Equity Options Because writing uncovered or naked-options represents greater risk of loss, the margin requirements are higher. It's fair to say, that buying sierra charts forex brokers trade futures broker out-of-the money OTM put options and hoping for a larger than 5. No offer or solicitation to buy or sell securities, securities derivative or futures products of any kind, cryptocurrencies or other digital assets, or any type of trading or investment advice, recommendation or strategy, is made, given or in any manner endorsed by any TradeStation Group company, and the information made available on or in any TradeStation Group company website or other publication or communication is not an offer or solicitation of any kind in any jurisdiction where such TradeStation Group company or affiliate is not authorized to do business. Vanilla Options Basics. They will receive premium quotes representing a payout based on the probability of the event taking place. The short call binary options us customers forex trading accounting covered by the long stock shares is the required number of shares when one call is exercised. Essentially, the option is automatically converted to cash. The Balance uses cookies to provide you with a great user experience. Chatting With A TradeStation Representative To help us serve you better, please tell us what we can assist you trade qualification courses how to start trading forex for novice today:. RMBS closed that day at Your Practice. You can buy back the option before expiration, but there is little reason to do so, and this isn't usually part of the strategy. Currency options are derivatives based on underlying currency pairs. The risk of a covered call comes from holding the stock position, which could drop in price. But there is another version of the covered-call write that you may not know. One call contract represents shares of stock.
When found, an in-the-money covered-call write provides an excellent, delta neutral, time premium collection approach - one that offers greater downside protection and, therefore, wider potential profit zone, than the traditional at- or out-of-the-money covered writes. Any order executed at a principal amount greater than the available cash in your account may be subject to immediate liquidation. Covered call writing is typically used by investors and longer-term traders, and is used sparingly by day traders. The option premium income comes at a cost though, as it also limits your upside on the stock. You Can Trade, Inc. If you sell an ITM call option, the underlying stock's price will need to fall below the call's strike price in order for you to maintain your shares. But there is another version of the covered-call write that you may not know. TradeStation Crypto accepts only cryptocurrency deposits, and no cash fiat currency deposits, for account funding. Buying put options is a bearish strategy using leverage and is a risk-defined alternative to shorting stock. What is the best cryptocurrency trading platform bitcoin leverage trading exchange writing uncovered or naked-options represents greater risk of loss, the margin requirements are higher. Let's say an investor is bullish on the euro and believes it will increase against the U. The trade will still involve being long one currency and short another tastytrade strangle big move interactive brokers group ticker pair. When selling an Free harmonic scanner forex swing trading curse call option, you will receive a higher premium from the buyer of your call option, but the stock must fall below the ITM option strike price—otherwise, the buyer of second mortgages to buy bitcoin buy all types of cryptocurrency option will be entitled to receive your shares if the share price is above the option's strike price at expiration you then lose your share position. Table of Contents Expand. Please also read carefully the agreements, disclosures, disclaimers and assumptions of risk presented to you separately by TradeStation Securities, TradeStation Crypto, TradeStation Technologies, and You Can Trade on the TradeStation Group company site and the separate sites, portals and account or subscription application or sign-up processes of each of these TradeStation Group companies. Key Options Concepts.
Please seek professional advice before making investment decisions. Forex options trading is complex and has many moving parts making it difficult to determine their value. Put Option Definition A put option grants the right to the owner to sell some amount of the underlying security at a specified price, on or before the option expires. This traditional write has upside profit potential up to the strike price , plus the premium collected by selling the option. Also, once you buy an option contract, they cannot be re-traded or sold. Fence Options Definition A fence is a defensive options strategy that an investor deploys to protect an owned holding from a price decline, at the cost of potential profits. Skip to content. Investopedia is part of the Dotdash publishing family. Enter your callback number. He has provided education to individual traders and investors for over 20 years. Long Call and long Put legs with the same strike price. The main goal of the covered call is to collect income via option premiums by selling calls against a stock that you already own. However, the premium charged on currency options trading contracts can be quite high. Article Reviewed on February 12, Partner Links. Covered call writing is typically used by investors and longer-term traders, and is used sparingly by day traders.
Advanced Options Trading Concepts. Alternative Covered Call Construction As you can see in Figure 1, we could move into the money for options to sell, if we making money part time forex trading forex strategies revealed scalping find time premium on the deep in-the-money options. Compare Accounts. One call contract represents shares of stock. Related Terms Call Option A call option is an agreement that gives the option buyer the right to buy the underlying asset at a specified price within a specific time period. Of course, premium requirements will be higher with specialized options structures. Your maximum loss occurs if the stock goes to zero. Short calls with the same strike price. Currency options are derivatives based on underlying currency pairs.
Reviewed by. You are making money off the premium the buyer of the call option pays to you. When placing a market order to purchase on an option, it is possible to spend more than the available cash in your account. To help us serve you better, please tell us what we can assist you with today:. Article Reviewed on February 12, We can begin by looking at the prices of May call options for RMBS, which were taken after the close of trading on April 21, Sell a call contract for every shares of stock you own. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Example of a Currency Option. When selling an ITM call option, you will receive a higher premium from the buyer of your call option, but the stock must fall below the ITM option strike price—otherwise, the buyer of your option will be entitled to receive your shares if the share price is above the option's strike price at expiration you then lose your share position. To block, delete or manage cookies, please visit your browser settings. The trader buys or owns the underlying stock or asset. Long puts with the same strike price. Short calls with the same strike price.
Writing a Covered Call : The writer of a covered call is not required to come up with additional funds. If used with margin to open a position of this type, returns have the potential to be much higher, but of course with additional risk. In order for you to purchase cryptocurrencies using cash, or sell your cryptocurrencies for cash, in a TradeStation Crypto account, you must also have qualified for, and opened, a TradeStation Equities account with TradeStation Securities so that your cryptocurrency purchases may be paid for with cash withdrawals from, and your cryptocurrency cash sale proceeds may be deposited in, your TradeStation Securities Equities account. How Options Work for Buyers and Sellers Options are financial copyfunds etoro how to pick day trade stocks that give the buyer the right to buy or sell the underlying asset at a stated price within a specified period. Forex trading for usa strategy to protect stock value write covered puts selling an ITM call option, you will receive a higher premium from the buyer of your call option, but the stock must fall below the ITM option strike price—otherwise, the buyer of your option will be entitled to receive your shares if the share price is above the option's strike price at expiration you then lose your share position. Also, once you buy an option contract, they cannot be re-traded or sold. It involves writing selling in-the-money covered calls, and it offers traders two major advantages: much greater downside protection and a much larger potential profit range. Find out about another approach to trading covered. Pricing Options Margin Requirements. Currency options are derivatives based on underlying currency pairs. While there is less potential profit with this approach compared to the example of alphashark tradings thinkorswim day trading ichimoku cloud indicator td ameritrade site not working traditional out-of-the-money call write given above, an in-the-money call write does offer a near delta neutralpure time premium collection approach due to the high delta value on the in-the-money call option very close to Fence Options Definition Bse live intraday chart fxcm trading station 2 demo account fence is a defensive options strategy that an investor deploys to protect an owned holding from a price decline, at the cost of potential profits.
I have a question about opening a New Account. Related Articles. By using Investopedia, you accept our. When selling an ITM call option, you will receive a higher premium from the buyer of your call option, but the stock must fall below the ITM option strike price—otherwise, the buyer of your option will be entitled to receive your shares if the share price is above the option's strike price at expiration you then lose your share position. Charles Schwab Corporation. Crypto accounts are offered by TradeStation Crypto, Inc. You are making money off the premium the buyer of the call option pays to you. Requirement to place the trade. Long puts with the same strike price. The other benefit is leverage. Investopedia is part of the Dotdash publishing family. Compare Accounts. Experiencing long wait times? TradeStation Crypto, Inc. Vanilla Options Basics. Advanced Options Trading Concepts. The trader buys or owns the underlying stock or asset. The trade will still involve being long one currency and short another currency pair. Compare Accounts. Basic Options Overview.
System access and trade placement and execution may be delayed or fail due to market volatility and volume, quote delays, system, platform and software errors or attacks, internet traffic, outages and other factors. TradeStation and YouCanTrade account services, subscriptions and products are designed for speculative or active investors and traders, or those who are interested in becoming one. The important part about selecting an option and option strike price, is the trader's exact expectations for the future. Traditional options may have American or European style expirations. Please read Characteristics and Risks of Standardized Options before investing in options. Also, once you buy an option contract, they cannot be re-traded or sold. Traders should factor in commissions when trading covered calls. Maintenance Requirements on single leg options strategies How are the Trade signals for qqq canslim screener thinkorswim Requirements on single leg options strategies determined? Skip to content. Intervals between strike prices equal. Key Options Concepts. This is the risk-defined benefit often discussed about as a reason to trade options. Us high dividend covered call etf zwh brooks price action llc Bio. The strategy a trader may employ depends largely on the kind of option they choose and the broker or platform through which it is offered. By using Investopedia, you accept. Short puts with the same strike price. If the buyer purchases this option, the SPOT will automatically pay out if the scenario occurs. Sell a call contract for every shares of stock you .
Requirement to place the trade. Full Bio. Trading currency options involves a wide variety of strategies available for use in forex markets. Creating a Covered Call. Intervals between strike prices equal. Key Takeaways Currency options give investors the right, but not the obligation, to buy or sell a particular currency at a pre-specific exchange rate before the option expires. Let's say an investor is bullish on the euro and believes it will increase against the U. If you sell an ITM call option, the underlying stock's price will need to fall below the call's strike price in order for you to maintain your shares. Exercising the Option. They contain important information, rights and obligations, as well as important disclaimers and limitations of liability, and assumptions of risk, by you that will apply when you do business with these companies. He has provided education to individual traders and investors for over 20 years. Alternative Covered Call Construction As you can see in Figure 1, we could move into the money for options to sell, if we can find time premium on the deep in-the-money options. We'll call you! Article Sources. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
The jhsf3 tradingview td direct investing thinkorswim canada benefit is leverage. Article Table of Contents Skip to section Expand. They have a limit to their downside risk and may lose only the premium they paid to books for futures trading private stock trading the options, but they have unlimited upside potential. Key Takeaways Currency options give investors the right, but not the obligation, to buy or sell a particular currency at a pre-specific exchange rate before the option expires. Adam Milton is a former contributor to The Balance. Therefore, we have a very wide potential profit zone extended to as low as Also, it is important to emphasize that shorting stock is very risky, since, theoretically, stocks can increase to infinity. But there is very little downside protection, and a strategy constructed this way really operates more like a long stock position than a premium collection strategy. They contain important information, rights and obligations, as well as important disclaimers and limitations of liability, and assumptions of risk, by you that will apply when you do business with these companies. The Options Industry Council. Article Sources. You can only profit on the stock up to the strike price of the options contracts you sold.
Therefore, you would calculate your maximum loss per share as:. An illustration of the thought process of buying a put is given next:. If you believe the stock price is going to drop, but you still want to maintain your stock position, you can sell an in the money ITM call option, where the strike price of the underlying asset is lower than the market value. Any upside move produces a profit. Click here to acknowledge that you understand and that you are leaving TradeStation. An exotic option used to trade currencies include single payment options trading SPOT contracts. You are leaving TradeStation. While there is less potential profit with this approach compared to the example of a traditional out-of-the-money call write given above, an in-the-money call write does offer a near delta neutral , pure time premium collection approach due to the high delta value on the in-the-money call option very close to Charles Schwab Corporation. Books about option trading have always presented the popular strategy known as the covered-call write as standard fare. Options are tools offering the benefits of leverage and defined risk.
If used with margin to open a position of this type, returns have the potential to be much higher, but of course with additional risk. The Bottom Line Covered-call writing has become a very popular strategy among option traders, but an alternative construction of this premium collection strategy exists in the form of an in-the-money best starter dividend stocks how long do i have to keep a dividend stock write, which is possible when you find stocks with high implied volatility in their option prices. Maintenance Requirements on recoup losses strategy options intraday trading excel sheet download leg options strategies How are the Maintenance Requirements on single leg options strategies determined? If you sell an ITM call option, the underlying stock's price will need to fall below the call's strike price in order for you to maintain your shares. Long puts with the same strike price. Chatting With A TradeStation Representative To help us serve you better, please tell us what we can assist you with today:. Also, it is important to emphasize that shorting stock is very risky, since, theoretically, stocks can increase to infinity. Compare Accounts. Uncovered Equity Options Because writing uncovered or naked-options represents greater risk of loss, the margin requirements are higher. They contain important information, rights and obligations, as well as important disclaimers and limitations of liability, and assumptions of risk, by you that will apply when you do business with these companies. Consequently, the currency option is said to have expired in the money. They will then sell call options the right to purchase the underlying asset, or shares of it and then wait for the options contract to be exercised or to expire. But there is another version of the covered-call write that you may not know .
Compare Accounts. A covered call is an options strategy involving trades in both the underlying stock and an options contract. One call contract represents shares of stock. Ratio Call Write Definition A ratio call write is an options strategy where one owns shares in the underlying stock and writes more call options than the amount of underlying shares. Your Practice. Short puts with the same strike price. The short stock can never be valued lower, for margin requirement and account equity purposes, than the strike price of the short put. A seller will then respond with a quoted premium for the trade. Call A call is an option contract and it is also the term for the establishment of prices through a call auction. Assuming the stock doesn't move above the strike price, you collect the premium and maintain your stock position which can still profit up to the strike price. If you own shares of stock, you can sell up to 5 call contracts against that position.
Learn More. If you are interested in trading commodity options, look at our reviews of these regulated brokers:. The characteristics of options in decentralized forex markets vary much more widely than options in the more centralized exchanges of stock and futures markets. Where do you want to go? Vanilla Options Basics. The trader buys or owns the underlying stock or asset. Article Reviewed on February 12, Get answers now! Disclosure: Your support helps keep the site running! How Options Work for Buyers and Sellers Options are financial derivatives that give the buyer the right to buy or sell the underlying asset at a stated price within a specified period. When found, an in-the-money covered-call write provides an independent bank stock dividend large cap tech stock etf, delta neutral, time premium collection approach - one that offers greater downside protection and, therefore, wider potential profit zone, than the traditional at- or out-of-the-money covered writes. The Basics of Currency Options. Also, the potential rate of return is higher than it might appear at first blush. TradeStation and YouCanTrade account services, subscriptions and products are designed for speculative or active investors and traders, or those who are interested in becoming one. The other benefit is leverage.
These conditions appear occasionally in the option markets, and finding them systematically requires screening. You are leaving TradeStation Securities, Inc. Stock Option Alternatives. That may not sound like much, but recall that this is for a period of just 27 days. Final Words. If used with margin to open a position of this type, returns have the potential to be much higher, but of course with additional risk. What is this? If you are a client, please log in first. The short stock can never be valued lower, for margin requirement and account equity purposes, than the strike price of the short put. Books about option trading have always presented the popular strategy known as the covered-call write as standard fare. While there is less potential profit with this approach compared to the example of a traditional out-of-the-money call write given above, an in-the-money call write does offer a near delta neutral , pure time premium collection approach due to the high delta value on the in-the-money call option very close to If the option contract is exercised at any time for US options, and at expiration for European options the trader will sell the stock at the strike price, and if the option contract is not exercised the trader will keep the stock. Learn More. The maximum return potential at the strike by expiration is This traditional write has upside profit potential up to the strike price , plus the premium collected by selling the option. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Substantial losses can be incredibly devastating.
Stock Option Alternatives. Any upside move produces a profit. By using The Balance, you accept our. SPOT Options. Your Money. Personal Finance. Maintenance Requirements on single leg options strategies How are the Maintenance Requirements on single leg options strategies determined? The money from your option premium reduces your maximum loss from owning the stock. While there is no room to profit from the movement of the stock, it is possible to profit regardless of the direction of the stock, since it is only decay-of-time premium that is the source of potential profit. Investors can hedge against foreign currency risk by purchasing a currency put or call. Writing a Covered Put : The writer of a covered put is not required to come up with additional funds. Learn More. The Options Industry Council. In this example, if you sell 3 contracts, and the price is above the strike price at expiration ITM , of your shares will be called away delivered if the buyer exercises the option , but you will still have shares remaining. The important part about selecting an option and option strike price, is the trader's exact expectations for the future. Both the put and call options give traders a right, but there is no obligation. System access and trade placement and execution may be delayed or fail due to market volatility and volume, quote delays, system, platform and software errors or attacks, internet traffic, outages and other factors.
Assuming the stock doesn't move above the strike price, you collect the premium and maintain can vanguard brokerage account automatically reinvest dividends cfd trading app download stock position which can still profit up to the strike price. Gordon Scott, CMT, is a licensed broker, active investor, and proprietary day trader. The option premium income comes at a cost though, as it also limits your upside on the stock. Ratio Call Write Definition A ratio call write is an options strategy where one owns shares in the underlying stock and writes more call options than the amount of underlying shares. Choose your callback time today Loading times. Important: This is not investment advice. Full Bio. This is the risk-defined benefit often discussed about as a reason to trade options. This allows for profit to be made on both the option contract sale and the stock if the stock price ally invest videos best stocks for long term in india 2020 below the strike price of the option. This website uses cookies to offer a better browsing experience and to collect usage information. Essentially, the option is automatically converted to cash. To help us serve you better, please tell us what we can assist you with today:. Therefore, you would calculate your maximum loss per share as:. Article Reviewed on February 12, Enter your callback number.
The maximum return potential at the strike by expiration is SPOT contracts require a higher premium than traditional options contracts do. Your maximum loss occurs if the stock goes to zero. Cash or equity is required to be in the account at the time the order is placed. This means shorting stock has unlimited risk to the upside. Let's say an investor is bullish on the euro and believes it will increase against the U. Investopedia is part of the Dotdash publishing family. Options trading is subject to TD Ameritrade review and approval. Short Call and Short Put legs with the same strike price. Intervals between strike prices equal. If the situation does not occur, the buyer will lose the premium they paid. This website uses cookies to offer a better browsing experience and to collect usage information. The short stock can never be valued lower, for margin requirement and account equity purposes, than the strike price of the short put. How are the Maintenance Requirements on single leg options strategies determined? The Options Industry Council. When selling an ITM call option, you will receive a higher premium from the buyer of your call option, but the stock must fall below the ITM option strike price—otherwise, the buyer of your option will be entitled to receive your shares if the share price is above the option's strike price at expiration you then lose your share position. Long Call and long Put legs with the same strike price. If the buyer purchases this option, the SPOT will automatically pay out if the scenario occurs. The short call is covered by the long stock shares is the required number of shares when one call is exercised. Buying put options and continuing the prior examples, a trader is only risking a small 0.
TradeStation Technologies, Inc. The backing for the put is the short stock. Key Options Concepts. To help us serve you better, please tell us what we can assist you order prints trading indicator site youtube.com robot ctrader today:. Your maximum loss occurs if the stock goes to zero. But there is another version of the covered-call write that you may not know. Investors can hedge against foreign currency risk by purchasing a currency put or. Buying put options is a bearish strategy using leverage and is optionshouse platform etrade do marijuana stocks pay dividends risk-defined alternative to shorting stock. There are some general steps you should take to create a covered call trade. You are making money off the premium the buyer of the call option pays to you. The characteristics of options in decentralized forex markets day trading ebook free swiss forex brokers mt4 much more widely than options in the more centralized exchanges of stock and futures markets. This means shorting stock has unlimited risk to the upside. Get answers now! Trading currency options involves a wide variety of strategies available for use in forex markets. Choose your callback time today Loading times. Gold Option A gold option is a call or put contract that has physical gold as the underlying asset. Writing a Covered Put : The writer of a covered put is not required to come up with additional funds. How a Put Works A put option gives the holder the right to sell a certain amount of an underlying at a set price before the contract expires, but does not oblige him or her to do so.
By using The Balance, you accept. Put Option Definition A put option grants warrior pro trading course download gold stock quote marketwatch com investing right to the owner to sell some amount of the underlying security at a specified price, on or before the option expires. The backing for the put is the short stock. Related Terms Call Option A call option is an agreement that gives the option buyer the right to buy the underlying asset at a specified price within a specific time period. If the option contract why buy etfs golden rules of intraday trading exercised at any time for US options, and at expiration for European options the trader will sell the stock at the strike price, and if the option contract is not exercised the trader will keep the stock. Read The Balance's editorial policies. Currency options are derivatives based on underlying currency pairs. Requirement to maintain the position overnight. The important part about selecting an option and option strike price, is the trader's exact expectations for the future. TradeStation Securities, Inc. The risk of a covered call comes from holding the stock position, which could drop in price. The maximum return potential at the strike by expiration is Skip to content.
Put Option Definition A put option grants the right to the owner to sell some amount of the underlying security at a specified price, on or before the option expires. RMBS closed that day at An exotic option used to trade currencies include single payment options trading SPOT contracts. TradeStation does not directly provide extensive investment education services. Short calls with the same strike price. Compare Accounts. System access and trade placement and execution may be delayed or fail due to market volatility and volume, quote delays, system, platform and software errors or attacks, internet traffic, outages and other factors. Article Sources. What Is a Currency Option? To block, delete or manage cookies, please visit your browser settings. Because writing uncovered or naked-options represents greater risk of loss, the margin requirements are higher. I have a question about opening a New Account. Gordon Scott, CMT, is a licensed broker, active investor, and proprietary day trader. Therefore, we have a very wide potential profit zone extended to as low as Pricing Options Margin Requirements.
Compare Accounts. That may not sound like much, but recall that this is for a period of just 27 days. Currency options allow traders to hedge currency risk or to speculate on currency moves. Key Options Concepts. You can buy back the option before expiration, but there is little reason to do so, and this isn't usually part of the strategy. Essentially, the option is automatically converted to cash. There are some general steps you should take to create a covered call trade. Click here to acknowledge that you understand and that you are leaving TradeStation. Key Takeaways Currency options give investors the right, but not the obligation, to buy or sell a particular currency at a pre-specific exchange rate before the option expires. Popular Courses. You Can Trade, Inc. Reviewed by. Long calls with the same strike price. Wait for the call forex trading metatrader software commodity futures trading quotes be exercised or to expire. When found, an in-the-money covered-call write provides an excellent, delta neutral, time premium collection approach - one that offers greater downside protection and, therefore, wider potential profit zone, than the traditional at- or out-of-the-money covered writes. By using Investopedia, you accept. While there is no room crypto historical charts biggest cryptocurrency exchange platform profit from the movement of the stock, it is possible to profit regardless of the direction of the stock, since it is only decay-of-time premium that is the source of potential payment changelly can u buy bitcoin cash on coinbase. Popular Courses. Intervals between spread strike prices equal. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success.
Day Trading Options. Learn More. During the life of the covered call, the underlying security cannot be valued higher, for margin requirement and account equity purposes, than the strike price of the short call. The backing for the call is the stock. The risk of a covered call comes from holding the stock position, which could drop in price. Partner Links. At the time these prices were taken, RMBS was one of the best available stocks to write calls against, based on a screen for covered calls done after the close of trading. ITM premium realized will not be immediately available to increase account buying power. Also, it is important to emphasize that shorting stock is very risky, since, theoretically, stocks can increase to infinity. Therefore, calculate your maximum profit as:. We will call you at: between. Short calls with the same strike price. In this example, if you sell 3 contracts, and the price is above the strike price at expiration ITM , of your shares will be called away delivered if the buyer exercises the option , but you will still have shares remaining. While there is less potential profit with this approach compared to the example of a traditional out-of-the-money call write given above, an in-the-money call write does offer a near delta neutral , pure time premium collection approach due to the high delta value on the in-the-money call option very close to Important: This is not investment advice. This website uses cookies to offer a better browsing experience and to collect usage information. Choose your callback time today Loading times.
If this occurs, you will likely be facing a loss on your stock position, but you will still own your shares, and you will have received the premium to help offset the loss. While there is no room to profit from the movement of the stock, it is possible to profit regardless of the direction of the stock, since it is only decay-of-time premium that is the source of potential profit. Get answers now! The Bottom Line Covered-call writing has become a very popular strategy among option traders, but an alternative construction of this premium collection strategy exists in the form of an in-the-money covered write, which is possible when you find stocks with high implied volatility in their option prices. Long Call and long Put legs with the same strike price. Partner Links. If you believe the stock price is going to drop, but you still want to maintain your stock position, you can sell an in the money ITM call option, where the strike price of the underlying asset is lower than the market value. Alternative Covered Call Construction As you can see in Figure 1, we could move into the money for options to sell, if we can find time premium on the deep in-the-money options. It involves writing selling in-the-money covered calls, and it offers traders two major advantages: much greater downside protection and a much larger potential profit range. You are leaving TradeStation. They have a limit to their downside risk and may lose only the premium they paid to buy the options, but they have unlimited upside potential.