I have written 2 blog posts, sharing with you on how options work. Click the link below to read them again.
1) http://helmihakim.com/investment/m9a-insurance-regulatory-exam-blog-post-no-1/
2) http://helmihakim.com/investment/m9a-insurance-regulatory-exam-blog-post-no-2/
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Now, you have a clearer understanding on how option works. In this blog post, I am going to share with you today on 4 most commonly use, option strategies. They are….
1) Covered Call Strategy
2) Protective Put Strategy
3) Bull Straddle (also known as Long Straddle) Strategy
4) Bear Straddle (also known as Short Stradel) Strategy
I have created the diagram below while studying for my finance degree, to sum up and make it as easy as possible to comprehend. ( You can click on the image to view the full image)
1) Covered Call Strategy
You own the stock and you sell call option.
2) Protective Put Strategy
You own the stock and you buy put option.
Example, you own XYZ shares. The share price now is $50/share. You anticipate a bad news announcement, and are afraid that the share price might goes down. So you buy a put option, with a strike price of $50, by paying a small premium. If the share price goes down to $30, its okay, because you have the right to sell it at strike price of $50.
It is like paying premium for term insurance policy. Death or total and permanent disability happens, family gets money. If nothing happen, you just forego the term insurance premium.
3) Bull Straddle Strategy
You buy call and put option at the same strike price and expiration date.
You do this when you expect that there will be a sharp move in stock’s price in either direction, during the life of the options. You profit from the increased votality in the underlying stock’s price.
Example, if you as the investor expects an important court ruling which outcome can be very GOOD or very BAD for the company, you employ a bull straddle strategy.
4) Bear Straddle Strategy
You sell call and put option at the same strike price and expiration date.
You do this when you expect the stock price to remain steady, and don’t move, thus allowing to earn option premium.
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At first, it might be a bit difficult to grasp these 4 option strategies, because we, as financial advisors in Singapore hardly use this derivative instrument. However, it is crucial to understand, as we upgrade ourselves to be a competent financial consultants, to better service our clients.
Stay tuned for my next blog post! 🙂
p.s. By the way, if you wish to discover a simple & halal way to create a positive monthly cashflow and calculate your net worth for FREE, then please click here…
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This post was written by:
- My Quitting Story – Why I Left My Old Agency For The “Greater Good” – May 27, 2024
- Islamic Financial Consultant, Helmi Hakim is back…. – February 7, 2023
- 5 Secret Ways To Make You Feel Better When Handling Challenges In Your Life – May 22, 2021
Your blogs are very helpful indeed! I’ll be taking my M9A exam on Friday, I hope I could pass. Thanks for your blog 🙂
All the best Carla! 🙂
Hi,
Your blogs are interesting but I can’t find anything on future and forwards, options and warrants and swaps. Do you have any blogs on those?I can find derivatives .
Thanks,
Hi Lynn,
The reason why I don’t share much on derivatives is because today, I specialise in helping Muslim families plan their finance the shariah compliant way in Singapore.
Thus, I don’t advocate derivatives to form part of their investment portfolio due to certain prohibitions in Islamic Finance. 🙂
Thanks for your posts, very helpful!
Dear Helmi Hakim,
I chanced upon your blog while i’m sourcing for M9A Mock online to prepare for the upcoming exam after I had successfully “ti giam” passed for the M8A.
With no finance background, the terms used in the context at times are confusing.
All the 3 blogs on the M9A are so well written in simplest form that I can really understand and digest it.
I am extremely thankful. Looking forward to read up any other finance related exam post 🙂
Thank you Mao Mao. Do share with your fellow colleagues who are studying for M9A exams too! 🙂
Helmi Hakim