Income and protection strategies
Positions that collect a premium or limit a loss, each with what it can make, what it can lose and what happens when it is assigned.
- Cash-secured put
A cash-secured put is a put option that is sold while the seller keeps enough cash to buy 100 shares at the strike price if the put is assigned.
- Covered call
A covered call is a call option written against 100 shares of the stock that the writer owns. The writer receives the premium and must deliver the shares at the strike price if the call is assigned.
- The wheel strategy
The wheel strategy is a rotation between two positions on one stock. Cash-secured puts are sold until one is assigned, then covered calls are written on the shares until they are called away, and the rotation starts again.
- Collar
A collar is a position of 100 shares, one put bought with a strike price below the stock price and one call written with a strike price above it. The put sets a floor under the loss and the call sets a ceiling on the gain.