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If you’ve been trading stocks for some time and have never tried options, then you may want to give them a go. Stock options are more speculative but offer flexibility, diversification and control to protect your stock portfolio or create more investment income. So, here are some things you should know about options.

If we apply the covered call strategy to the stagnant stock scenario, we take a negative return scenario and turn it into a positive. Remember, when we sell an option, we receive a premium for doing so.

When the stock does not move during the option’s life, the extrinsic value of the option goes to zero. The money paid for the option goes to the seller. We’ll take a look at how this sets up.

Webster’s Dictionary defines the term strategy as ” 1 a) the science of planning and directing larger scale military operations, specifically (as distinguished from TACTICS) of maneuvering forces into the most advantageous position prior to actual engagement with the enemy b) a plan or action based on this. 2 a) skill in managing or planning, especially by using stratagems b) a stratagem or artful means to some end.

When applying a definition to investing in the market, we pay particular attention to the words “maneuvering into the most advantageous position prior to actual engagement” and the words “skill in managing or planning especially by using stratagems.”