What is Short-call strategy?
A short call strategy is a simple way in which the trader gets a bearish position in the market. It is also true that the traders can make limited profits and are exposed to limited risk when they are using the short call strategy
It means this strategy is suitable for seasoned traders who well know the market and better understand how the market moves during trading. This article will give you complete information on the short call strategy.
If you are curious about short-call strategy in online trading, you should read this article properly and get the understanding of all facts.
What is a short call strategy?
A short call means selling the call option, where you can purchase the underlying assets at the prefixed price at the predetermined date in the future. However, you do not stick to the exercise option and purchase the underlying assets by expiry.
This strategy has put limitations on profits in the case when the stock trading is going below the strike price but has associated with higher risk if the stock trading passes over the strike price.
When the short call strategy is begins
The right time to start the short-call strategy is when you are predicting that the stock values of underlying assets will fall.
- You will still be in benefit if the stock values of underlying assets are not changed.
- This is the reason why the time decay elements are always favorable for traders.
- After all, the time values of the short call option will fall when the expiry date is coming closer.
- The benefit of a short-call strategy in online trading, such as intraday tradingis that you will get the credit in advance, which is really useful to offset the margin amount.
- But, by reaching this position, you are more exposed to unlimited losses in the case when underlying assets price increase dramatically.
Rewards and risk involved in short call strategy
There is unlimited risk involved in short-call strategy, so it is suggested to expert traders to stay aware of the trading market. On the other hand, there are limited rewards involved in the short-call strategy that the traders only get if the underlying asset prices fall or remain constant.
A way to manage the risk in short call strategy
When you are exposed to the number of risks in the short-call strategy, then you are not holding the overnight position. Also, it is suggested to follow the stop loss order strictly so that you are able to limit the loss amount that occurs.
Conclusion
It is concluded that the short call strategy helps you to generate profits if the trades go in the same way which you are predicting, but it is quite risky too. On the other hand, if you are predicting that the prices of underlying assets will be going to fall, then the short call strategy is not considered a good option.
