The Bible of Options Strategies : the definitive guide for practical trading strategies [PDF]

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The Bible of Options Strategies : the definitive guide for practical trading strategies – Book

■ If the stock moves explosively upwards before expiration, you will be exercised, meaning that you will have to deliver double the amount of stock you hold.

■ At the beginning of the trade, you will have predefined your stop loss areas.

■ If the stock hits the upper price band, triggering your stop loss, then you should buy back at least one of the calls. You will then have created a “covered call.” Alternatively, you can unravel the entire spread.

■ If the stock hits the lower price band, triggering your stop loss, then you should sell the stock, provided that your account permits you to trade naked options. Alternatively, you can unravel the entire spread by buying back the sold calls and selling the bought stock.