Money Naked Calls are call warrants that are uncovered. The trader therefore does not have the underlying underlyings, but only the options. The option is in money, which means that the price is currently above the strike of the option. On the other hand, there are out-of-the-money options, which are my site some made out of the money and whose underlying price is below the strike. These are usually very cheap and hardly move with the course. On the other hand, options in the money show an almost simultaneous behavior towards the original site we price.
As the options are uncovered, they are mostly instruments of speculation on rising prices or hedging opportunities.
If such options are used not only for speculation, they are usually dedicated to hedging. This works particularly for short sales, so-called shortsellings. The option purchase price naturally reduces the profit of the shorts, but also the corresponding losses. If, in the theoretical model, the options, as is usually the case, are more favorable than the underlying and if the underlying value is as good as the underlying, the hedging principle is lost. However, this is only on paper so the practical experience has shown that this strategy does not work, since it see this page only can not be predicted precisely how the course of the underlyings is exactly. In particular, the time of a burglary, for example, would be of great interest, since options on their part have run times, on the other hand their value falls steadily over time.
However, this disadvantage does not have to be dispensed with entirely. Money Naked Calls are used to hedge the trading of large stock exchanges, foreign exchange and commodity stocks. The bottom line is out learn more here that the account can be invested for the investor, which is particularly the case if the warrants yield more profit than the share package has lost due to:
a.) Very fast occurrence of the event, the options have hardly lost see this here also value
B.) The relative strength of the event is high, so also is the volatility of the course expected in the future.
It is particularly beneficial that an option can generate a lot more profit than a share is possible through the big leverage. However, this also applies to losses. A major drawback is that the value trend of warrants seems hardly predictable. It should be noted that options that are in money generally follow the mathematical models rather than options placed out of the money. Some traders also prefer options that are already running longer, as they usually follow the underlying better.
Another official source two possibility is the calculation of specific key figures, which are also often called “Greeks”. Furthermore, scenario computers can also be used. However, it is always difficult to predict what is going on with the underlying price.
Even if the value of the warrant and the underlying would show an exactly parallel development, the decline in the value of time still occurs. good read the full info here It is therefore a race between cat and mouse or, more precisely, option issuer and trader. Sometimes, however, this also wins the trader.
Graphic: Out-Of-The-Money Naked Call (Strategy):
Conclusion on Money Naked Call Strategy
As with all hedging strategies, this is just one of the many possible. It is just as important that the exact scenario expectations are met, to which the hedging strategy has been adapted.
However, no hedging strategy is a guaranty for total hedging against losses, since values can fall into the ground at any time. If this were the case, the brokers would not make money on the option trades and some traders could back visit homepage multiply their capital within a very short time.
The exchange trading therefore requires the investor to take risks and also certain losses