Derivatives are an important part of financial markets as they can help reduce the risk and/or enhance the return of a portfolio. Options are a derivative that gives the buyer the right to buy or sell a security at a specified price. Call options provide the right to buy and put options provide the right to sell (before expiry date).
There are 3 intermediate strategies that can help one gain more control over a portfolio. See below:
These strategies can help traders reduce their risk in a portfolio while also providing some additional yield through option premiums. However, it’s important to note that these strategies can also open one up to additional risks. Market participants should be aware of the profit and loss potential on every trade that they put on.