Introduction

Many investors will use options to manage risk or to establish more complex positions than simply directionally trading options by buying or selling puts and calls. In this chapter, we will review option hedging strategies as well as how and why to establish multiple option positions.

Using Options as a Hedge

Many investors will use options to hedge a position that they have established in the underlying stock. Options can be used to guard against a loss or to protect a profit the investor has in a position. Options in this case will operate like an insurance policy for the investor.

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LONG STOCK SHORT CALLS/COVERED CALLS

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