- Long Calls
Buying calls is a popular strategy for both novice and experienced options investors. Two reasons you might purchase calls are to profit from an increase in the price of the underlying security or to lock in an appealing purchase price.
- Short Calls
Writing a call can be risky depending on whether your position is covered or uncovered. You take less risk by writing a call on stocks you already own, which is also known as writing a covered call.
- Long Puts
Like selling calls, buying puts can be an effective strategy that may help protect your assets or provide a profit in a bear market.
- Short Puts
Going short by writing a put is generally considered more risky than going long since you're obligated to honor your side of the contract should the holder decide to exercise.
Spread strategies are more complicated than buying or selling a put or a call because they involve entering two options transactions on the same underlying stock or index.
A collar is a spread strategy where you simultaneously purchase a protective put and write a covered call on stock you already own. If you hold a stock whose price has risen sharply, a collar can help you protect those gains against a future drop in price.