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Improving Basis on Less Than 100 Shares

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Improving basis on 100 shares of stock is fairly straightforward: traders can sell a call against the position, collect premium and lower the breakeven.

If a trader owns less than 100 shares, selling one call option would generate risk to the upside and jeopardize a long bias.

Tom and Tony walk through 3 different examples of how traders may look to sell call spreads against small stock positions.

The first two examples in IWM and TSLA look at how a short call spread brings in premium to lower the breakeven while maintaining profit potential to the upside.

The final example looks at AAPL with a $5 point wide call spread that carries too much risk relative to the profitability of the long shares. This constitutes an "over hedge," and gives an idea of what not to do!

Tune in for Tom and Tony's full discussion!

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