Professional traders use different options strategies, they
may use the term lean to refer to ones perception about the
directional strength of the stock. When you own a stock and
intend to hold it for a period of time, you are aware that you
will probably be holding it while it goes up and while it goes
This means that at any given moment in time, you might have
a different opinion of the potential movement of that stock.
Knowing this, there is a way to address your present level of
confidence or lean for your different options strategies
You do this by your choice of which option you sell.
While it is true that the at-the-money option has the most amount
of extrinsic value, selling might not always be one of the ideal
options strategies in every situation.
If your options strategies lead you to a more neutral view on
your stock you would sell an at-the-money-call in order to receive
a bigger premium which allows for greater downside protection
if the stock trades down and higher potential profit if the
stock becomes stagnant.
These options strategies also work on the downside. If, by chance,
you feel that the stock may trade down a bit during the life
of the option, then you can sell an in-the-money-call. The effect
of this would be to provide you with a little extra premium
to cover more downside risk.
Remember when you follow these options strategies and sell an
option you seek to capture extrinsic value. An in-the-money
option not only has extrinsic value but also some intrinsic
When you feel that you want to lean your covered call options
strategies (buy-write) a little short, choose to sell an in-the-money
call so you can also have some intrinsic value to cover your
As an example of proper options strategies, say your stock is
trading at $29.00 and you feel that your stock may trade down
a little but still remain in an uptrend cycle. You dont want
to get rid of the stock but you also dont want to lose any
money so you sell the 27.5 call at $2.00.
The stock starts to trade down and finishes at $26.00. If you
had owned the stock naked, then you would have lost three dollars
since you owned the stock at $29.00 and it closed at $26.00
However, because you sold the 27.5 calls at $2.00, you would
only realize a $1.00 loss in the stock. The premium received
will offset the loss due to the fact that you identified and
adjusted for a likely move.
As you can see, the buy-write options strategies
can be altered
to fit any directional view you have on your selected stock.
If you intend to use the buy-write options strategies successfully,
you generally need to sell the calls against your stock on a
consistent, recurring interval, over a period of time.
This means that you will have to be prepared to roll your
calls out to the next month come expiration. Sometimes, all
youll need to do is to sell the next month out call.