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WIKI ANALYSIS
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This page will describe ways to lock profits in practical options trading. These methods are based on practical experiences and not by reading some theoretical stuff in the books with loads of assumptions that do not hold true in the real world. Also, note that these are not hedging strategies that limit profits, but genuine ways of locking in profits (and thus reducing exposed risk) when the markets move in the expected direction.
Swap strikes
Pros:
- Limited risk to profits at any given point
- Frees up investment
Cons:
- Nothing in addition to the risks of initial investment
Buy opposite direction instrument - put for call, call for put
Pros:
- Profits locked
- Good for volatile times
- Can profit from even an unfavourable move
Cons:
- Additional Investment
- Reduced Return on investment (ROI)
Jumping Call Spreads/Jumping Bear Spreads
Pros:
- Lesser initial investment
- Higher Return on investment (ROI)
- Continued participation in favourable moves
Cons:
- Might lose additional profits on sudden high moves
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