$NVIDIA (NVDA.US)$ With the recent volatility of the US stoc...
With the recent volatility of the US stock market and NASDAQ falling sharply by 13%, I will adapt a Futu options trading tutorial to explain how to effectively reduce losses through options. (Please note that the risks and margin requirements of the following operations are not discussed here due to the length of the content, please contact privately.)
Using the highly popular Nvidia as an example, suppose we recently purchased Nvidia stocks (100 shares) at a price of $120. As of August 9, 2024, the current market price has fallen to around $104. By selling a call option with a strike price of $120 and expiration date of August 23, we will immediately receive a premium of $87.5 to reduce position losses (please note that one option corresponds to 100 shares, not one share).
Assuming that due to macroeconomic factors, the stock price will not rise in the short term and remains below $120, the call option will not be exercised, and our option premium income will be $87.5. For example, if Nvidia's stock price rebounds to $110 on August 23, the investor's loss on the underlying stock is $1,000, which means that the final loss is $912.5 ($1,000 - $87.5). If the stock price breaks through $120 due to unexpected bullish news, then your call option will be exercised and you will recover the previously invested capital.
If the stock price continues to consolidate, we can continue to engage in similar secured call options trading, and the accumulated options fees will offset some of the investment losses. For example, if we engage in a secured call options trade once a month, with an options fee of $87.5 per trade, then after 6 months, if Nvidia's stock price has not yet surpassed the strike price and lingers around $100, the accumulated profit from the options fees would be around $400, offsetting the stock loss of $2,000 (100 * ($120-$100)) but still making a profit after deducting from the options fees, reducing the loss to $1,600. (Figure 1) At the same time, we can also sell secured options at $90, due on August 23, and you can receive a premium of $100. Again, with a time frame of 6 months, the approximate profit would be $750. (Figure 2) As a result, your total loss would be reduced to $850.
Using the highly popular Nvidia as an example, suppose we recently purchased Nvidia stocks (100 shares) at a price of $120. As of August 9, 2024, the current market price has fallen to around $104. By selling a call option with a strike price of $120 and expiration date of August 23, we will immediately receive a premium of $87.5 to reduce position losses (please note that one option corresponds to 100 shares, not one share).
Assuming that due to macroeconomic factors, the stock price will not rise in the short term and remains below $120, the call option will not be exercised, and our option premium income will be $87.5. For example, if Nvidia's stock price rebounds to $110 on August 23, the investor's loss on the underlying stock is $1,000, which means that the final loss is $912.5 ($1,000 - $87.5). If the stock price breaks through $120 due to unexpected bullish news, then your call option will be exercised and you will recover the previously invested capital.
If the stock price continues to consolidate, we can continue to engage in similar secured call options trading, and the accumulated options fees will offset some of the investment losses. For example, if we engage in a secured call options trade once a month, with an options fee of $87.5 per trade, then after 6 months, if Nvidia's stock price has not yet surpassed the strike price and lingers around $100, the accumulated profit from the options fees would be around $400, offsetting the stock loss of $2,000 (100 * ($120-$100)) but still making a profit after deducting from the options fees, reducing the loss to $1,600. (Figure 1) At the same time, we can also sell secured options at $90, due on August 23, and you can receive a premium of $100. Again, with a time frame of 6 months, the approximate profit would be $750. (Figure 2) As a result, your total loss would be reduced to $850.
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