1. Buying a Call Option
A call option is the right to buy stock, or in this case an ETF. Up until the expiration date of the call, you have the right to buy the underlying ETF at a certain price known as the strike price.
2. Selling a Call Option
When you sell a call, you take the opposite position of a call buyer. You want the ETF to go down. Selling options is a more advanced trading strategy than buying options. When purchasing options, the maximum risk is the purchase price and the profit is unlimited to the upside. However when selling an option, the maximum profit is the sale price and the risk is unlimited. Remember to be very careful and very educated before selling options.
3. Buying a Put Option
A safer way to gain exposure or hedge the downside of an ETF than selling a call option. If you think an ETF will decline in value or if you want to protect downside risk, buying a put option may be the way to go. A put option is the right to sell an ETF at a certain price.
4. Selling a Put Option
When you sell a put option, you give the right to the put buyer to sell the ETF at the strike price at ay time before expiration. This is the opposite position of purchasing a put, but similar to buying a call. You want the ETF to rise or stay above the strike price.
It is important to note that selling options has more risk than buying options. That is not to say it isn’t profitable. The cost of that risk is factored into the price of an option. But if you are a beginner in the world of calls and puts, buying ETF options is the safer route.
Think twice before making an investment.