Using Options to Mitigate Risks

With the market at all time highs, I'm getting a bit more cautious.  As I have posted before, I am selling some of my positions with gains.  Another way I am reducing risks is through the using options, such as puts and calls.
  • Puts - I like to sell puts on stocks that I'm willing to own, but wouldn't mind owning at a lower price.  If the stock goes up, I get the premium for selling the put.   If the stock falls below the put strike price, I end up buying the stock, but at a lower price.  Occasionally, I will buy a put on a stock that I think will decline significantly.

    I'm selling puts on a couple energy stocks that I feel have been beaten down, but have a chance to rebound.
  • Calls - I like to sell calls on stocks that I own when I feel the market is near a top.  That way if the stock declines, I keep the call premium.  If the stock rises above the call strike price, I end up selling the stock but at a slightly higher price.   Occasionally, I will buy a call to speculate on a stock price spiking upward.

    I'm selling calls on my company stock, which I hope will go up and let me sell at a higher price.  But if it doesn't, I will make a small profit on the call.  I purchased calls on couple energy stocks, in case they rise significantly but it appears unlikely now.
Usually, I don't trade puts and calls since the cost of commissions generally offset the profits of small positions.  However, for a short time I qualified for commission free trades, so I can trade a single contract of a low value option and still make a profit even on a small change in price.  This gives me a low cost opportunity to test my option trading ability.

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This is not financial advice. Please consult a professional advisor.

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