One thought on “What are some potential edge cases?

  1. Arti says:

    If you don’t, the option expires, and you no longer have the right to buy the underlying stock at the strike price. If you don’t, the option expires, and you no longer have the right to buy the underlying stock at the strike price. That’s because there’s more time for the stock price to potentially rise. That’s because there’s more time for the stock price to potentially rise. When buying a call, there’s no risk of early assignment or dividend risk. When buying a call, there’s no risk of early assignment or dividend risk. You can learn more about potential edge cases regarding corporate actions here. You can learn more about potential edge cases regarding corporate actions here. In exchange for these rights (known as the ability to “exercise” the options) you pay an upfront cost (the “premium”) for these contracts. In exchange for these rights (known as the ability to “exercise” the options) you pay an upfront cost (the “premium”) for these contracts. When buying a put, there’s no risk of early assignment or dividend risk. When buying a put, there’s no risk of early assignment or dividend risk. Expiration date: If you want to either sell or exercise your option, you must do so by this date. Expiration date: If you want to either sell or exercise your option, you must do so by this date. Here are a few key factors: Here are a few key factors: For selling a cash covered put, early assignment risk is one of the more common edge cases. For selling a cash covered put, early assignment risk is one of the more common edge cases. Using long straddles and strangles means buying a call option and a put option on the same underlying stock with the same expiration date. Using long straddles and strangles means buying a call option and a put option on the same underlying stock with the same expiration date. Buying a call means entering a contract that gives you the right, but not the obligation, to buy shares of a stock at a certain price (the “strike price”) up until a set date (“expiration date”). Buying a call means entering a contract that gives you the right, but not the obligation, to buy shares of a stock at a certain price (the “strike price”) up until a set date (“expiration date”). Assuming all other factors are constant, the further away an option’s expiration date, the lower your risk of loss. Assuming all other factors are constant, the further away an option’s expiration date, the lower your risk of loss. You can learn more about potential edge cases regarding corporate actions here. You can learn more about potential edge cases regarding corporate actions here. Here are a few key factors: Here are a few key factors: For selling a covered call, two of the more common edge cases are: Early assignment risk and dividend risk. For selling a covered call, two of the more common edge cases are: Early assignment risk and dividend risk. You can learn more about potential edge cases regarding corporate actions here. You can learn more about potential edge cases regarding corporate actions here. For that reason, options with later expiration dates are likely to have higher premiums. For that reason, options with later expiration dates are likely to have higher premiums. Here are a few key factors: Here are a few key factors: Meanwhile, buying a put gives you the right, but not the obligation, to sell shares of a stock at the strike price by the expiration date. Meanwhile, buying a put gives you the right, but not the obligation, to sell shares of a stock at the strike price by the expiration date. Here are a few key factors: Here are a few key factors: When buying a strangle or straddle, there’s no risk of early assignment or dividend risk. When buying a strangle or straddle, there’s no risk of early assignment or dividend risk.

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