$NVIDIA (NVDA.US)$ Recently, US stocks were in turmoil, and ...
Recently, US stocks were in turmoil, and the NASDAQ fell sharply by -13%. Here, I will adapt a Futu options lesson to explain how to effectively reduce losses through options. (The risks and margin requirements for the following operations are not discussed here. This is too long, please send a private message)
Take the popular Nvidia as an example. Let's say we recently bought Nvidia shares (100 shares) at a price of 120 dollars, then as of August 9, 2024, the current market price has dropped to around $104. Get an immediate premium of $87.5 to reduce position losses by selling call options with an expiration date of August 23 and an exercise price of $120 (note that 1 option corresponds to 100 shares, not 1 share).
Assuming that the stock price does not rise and remains below $120 due to macro factors in a short period of time, this option will not be exercised, and our option fee income is $87.5. For example, if Nvidia's stock price rebounded to $110 on August 23, the investor lost $1,000 on the underlying stock, which means the final loss was $1,000-87.5 = $912.5. If the stock price breaks through $120 due to unexpectedly favorable conditions, then your call option will be exercised, which means you have unlocked your previous capital.
If the stock price continues to move sideways, we can continue to carry out similar guaranteed call option transactions, then the accumulated option fee will cover some investment losses; for example, if we conduct a monthly secured call option transaction, and the option fee for each transaction is $87.5, then after 6 months, if Nvidia's stock price still does not break through the exercise price and hovers around $100, the cumulative profit from the option fee is about $400. The loss on the underlying stock is $2,000 (100* ($120-$100)), but the loss is reduced from the options fee after deduction. to $1,600. (Figure 1) At the same time, we can also sell the $90 guarantee option at the same time. Also, when it expires on August 23, you can get a $100 premium. Also, using a six-month timeline, the approximate profit is 750 US dollars (Figure 2). At this point, your total loss was reduced to 850 US dollars.
Take the popular Nvidia as an example. Let's say we recently bought Nvidia shares (100 shares) at a price of 120 dollars, then as of August 9, 2024, the current market price has dropped to around $104. Get an immediate premium of $87.5 to reduce position losses by selling call options with an expiration date of August 23 and an exercise price of $120 (note that 1 option corresponds to 100 shares, not 1 share).
Assuming that the stock price does not rise and remains below $120 due to macro factors in a short period of time, this option will not be exercised, and our option fee income is $87.5. For example, if Nvidia's stock price rebounded to $110 on August 23, the investor lost $1,000 on the underlying stock, which means the final loss was $1,000-87.5 = $912.5. If the stock price breaks through $120 due to unexpectedly favorable conditions, then your call option will be exercised, which means you have unlocked your previous capital.
If the stock price continues to move sideways, we can continue to carry out similar guaranteed call option transactions, then the accumulated option fee will cover some investment losses; for example, if we conduct a monthly secured call option transaction, and the option fee for each transaction is $87.5, then after 6 months, if Nvidia's stock price still does not break through the exercise price and hovers around $100, the cumulative profit from the option fee is about $400. The loss on the underlying stock is $2,000 (100* ($120-$100)), but the loss is reduced from the options fee after deduction. to $1,600. (Figure 1) At the same time, we can also sell the $90 guarantee option at the same time. Also, when it expires on August 23, you can get a $100 premium. Also, using a six-month timeline, the approximate profit is 750 US dollars (Figure 2). At this point, your total loss was reduced to 850 US dollars.
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