When youâ??ve been in the financial services industry for as long as I have as a 33-year veteran, youâ??ve seen the variety of ways and methods by which strategists bring new money-making models to the investing universe and how very few live up to their billing.
This view especially holds true in the trading of options. Most of us have heard or know that 90% of all options trades expire worthless. This is true, primarily because emotional greed controls the majority of novice options traders that buy short-term out-of-the-money puts and calls that simply run out of time before the underlying stock makes the decisive move necessary to generate a profit.
Smart money that trades options does it in two ways. Smart investors buy more than enough time when purchasing long call positions for the expected move in the underlying stock to materialize, and they the sell short-term option premium back to the market to collect immediate income. If done at the same time or within a short period, this strategy can be very lucrative on a repeat basis. The strategy is called a bull-call spread and is one of the more successful trading strategies used by trading pros when trying to profit from stocks that trade in excess of $100 per share that would typically tie up a lot of capital.
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