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Understanding LEAPS: Using the Most Effective Options Strategies for Maximum Advantage by Marc Allaire

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CHAPTER 2The Four Basic Option Strategies

Since there are two types of options, puts and calls, and either one can be either purchased or written, we obtain a total of four basic option strategies: buy call, buy put, write call, and write put. Consider these to be the building blocks of all option positions; the more complex strategies are created by combining these four basic strategies in various ways. We will review the four building blocks briefly, keeping in mind that we will come back to these in much greater detail in subsequent chapters.

BUYING CALLS

Purchasing calls is the most basic bullish option strategy. Take the following example as our starting point:

Why would an investor purchase call options on CB? First and foremost, the investor ...

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