Top Option Trading Strategies That Will Let You Invest With Confidence
By Space Coast Daily // August 12, 2019
Are you an investor? Are you looking for strategies to make huge profits in options trading? Well, you are in the right place. Don’t just jump into trading options minus understanding the necessary strategies.
Remember, losing your investment is very easy. Likewise, making huge profits is possible. So, why risk your money? Learn How to Trade Options and the strategies needed to make profits. Maximize your returns with the following option trading strategies.
Ever heard of covered call? Probably, yes. But do you know how it works when it comes to option trading? Well, with a covered call, you need to purchase a naked-based call option.
Alternatively, you can structure a buy-write (or even that basic cover call). With this option, you have the power of generating income and reducing risk when it comes to being long-based stock alone.
Here is how to trade-off: Sell your stock at a pre-set price known as the short strike price. The strategy is easy to execute. All that is needed of you is to buy an underlying stock is the normal way.
From here you will need to simultaneously sell them by using the call cation. This is like selling the same shares. For instance, you buy 100 shares in the normal way.
Then you sell one call option against the share. This represents a covered call strategy. In case there is a skyrocketing of stock prices, the long stock position will cover your short call.
As an investor, you can use this strategy—especially when you have those long-term positions when it comes to the stock as well as a neutral position on the stock’s direction. This strategy will protect you against the declining value of the underlying stock or make income by selling the call premium.
The married put strategy involves purchasing an asset (in this case stock shares) and simultaneously purchasing put options for equivalent share number.
It’s important to note that, as a shareholder, you have the right to sell them at a strike price. Remember, one contacts equal to 100 shares.
This strategy is important to an investor who is looking to protect his/her downside risk when it comes to holding of the stock. Just like common assurance policies, this strategy establishes a price floor in case there is a sharp fall in stock price.
Bull Call Spread
Another important options trading strategy is the bull call spread. With this strategy, you will need to simultaneously purchase calls at a certain strike price. From here, you will be required to sell them (i.e. the same calls)—albeit at a higher price.
It’s also important to remember that both class feature identical expiry as well as the underlying asset. As a powerful vertical spread strategy, the bull call spread works perfectly for those bullish investors who expect an average rise in asset prices. With this strategy, you limit your upside when it comes to the trade whilst reducing the net premium.
Bear Put Spread
With this vertical based strategy, you are required to simultaneously buy put options (albeit at a certain strike price) and then sell them at a lower price.
It’s also important to note that both options attract identical underlying asset and expiry date. In most cases, this strategy is ideal for bearish traders who expect the price of assets to decline. The strategy gives limited losses as well as limited gains. The strategy limits your put spread upside while reducing the premium spent.
To perform the protective collar strategy, purchase a put option known as out-of-the-money and then simultaneously write-off similar call option (i.e. out-of-the-money) for the same asset as well as the expiry date.
The strategy appeals to investors who have observed a stock that has been in a position for long but has finally recorded substantial gains. With this option combination, investors have the power to claim downside protection while enjoying the trade-off.Here is an example to illustrate how this strategy works
Suppose an investor has long shares (i.e. 100 shares) in IBM valued at $50. Then the IMB rises to $100 by 1st January.
Here, the investor can construct a protective collar. He/she can do this by trading 1 IBM March 15th 105 calls besides simultaneously purchasing 1 IBM March 95 put. This will protect the trader below $95 till March 15th—while being obliged to sell the shares at $105.
Another important strategy is the long straddle options technique. The technique can be executed when you (the investor) simultaneously buy both calls and put options—albeit on the identical underlying asset. It’s also important to note that the same expiry date, as well as price, applies when it comes to executing the long straddle technique.
The strategy is used when it’s feared that the underlying assert’s price might move out of range and the movement direction is unknown. With this strategy, an investor has the power to theorize unlimited gains while limiting the losses.
With the long strangle, you simultaneously purchase out-of-the-money put and call options. Remember, this must be done under the same asset as well as the expiry date.
This strategy appeals to investors who believe that the price of an asset is likely to record impressive movement, but are unsure about the direction of the movement.
Other Options Trading Strategies
Additionally, you can learn and apply the following trade options strategies:
- The Long Call-based Butterfly Spread strategy
- The Iron Condor strategy
- The Iron Butterfly strategy
The strategies you employ can break or make your options trading game. With the right strategies, you are sure of scaling the economic ladder and nailing huge profits.
So, if these are the thing you are looking for when options trading, consider using the above strategies. From the covered call, through the bear put spread, to the long strangle—these are strategies that will take you to your options trading destination.
They are proven, sure, and practical—and they can work like magic for both beginners and experienced investors. Try them and inflate your bank account.
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