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Trading Weekly Options + Online Video Course: Pricing Characteristics and Short-Term Trading Strategies by Russell Rhoads

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CHAPTER 8

Long Option Trades

Long option strategies are usually the first trades introduced to those new to option trading. Buying both a call option with a bullish outlook and buying a put option where there is a bearish outlook will be introduced in this chapter. Although there are better first, live-option trades, such as a covered call, buying a call or put is a good introduction to how the option markets work. These long trades are a good first step when discussing the mechanics of option trading. With the introduction of short-dated options a long option trade may actually make sense as a first live trade. One of the reasons short-dated options have taken off in popularity is because traders may come very close to a long or short position on a stock when trading an option that has very little time left to expiration. By their very nature, weekly options always have very little time left to expiration.

If a trader has a long or short opinion on a stock or market one of the most basic methods of trading that outlook is the purchase of a call or put option. When purchasing an option there is often a time value component that needs to be overcome in order for the trade to become profitable. This can be true for trades that are only anticipated to last a day or two, but the amount of time value that an option has in the premium may be at a level where, when combined with the price outlook for the underlying market, it makes doing a trade prohibitive. Time decay is always a concern ...

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