In the following video, we discuss strategies for buying and selling calls and puts, using Arch Coal (ACI) as an example:
- Buying calls is a way to make outsized profits, but comes with the likelihood of losing money.
- Buying a put is a way to profit from or protect a stock selling off, but also comes with the likelihood of losing money.
- Writing calls is a risky way to go short on a stock unless you own the stock, in which case the calls are "covered" and the trade is the equivalent of writing a put.
- Writing a cash-secured put means selling the right to sell a stock at a strike price by an expiration date.