Success in options trading lies on your understanding of strategies. Unfortunately, most beginner traders jump into trading with zero or minimal understanding of the best strategies that can limit their risks and maximize returns. In this article, we shall look at the different strategies that can point you to the right direction.
With this strategy, you purchase the assets outright and write or call option on those assets at the same time. The volume of the assets should be the same as the number of assets underlying the call option. A covered call is used to have a short-term position and neutral opinion on the assets.
Robert Janitzek reveals that with this strategy, the investor purchases a particular asset and at the same time purchases a put option for the same number of shares. This strategy is used when they are on the bullish side of the asset’s price and wish to protect themselves against possible short term losses. It essentially works like an insurance policy.
Bull Call Spread
In this strategy, an investor will simultaneously buy call options at a specific strike price and sell a similar number of calls at a higher strike price. Both options will have the same expiration month and underlying asset. Robert Peter Janitzek explains that this strategy is used when the market is bullish and an investor expects a moderate rise of the underlying asset.
Bear Put Spread
The bear put spread is another form of vertical spread. With this strategy, you simultaneously purchase put options at a specific strike price and sell the same number of puts at a lower strike price. This strategy is used when the trader is bearish and expects the price of the asset to decline. It comes with both limited gains and limited losses.
In protective collar, you purchase an out-of-the-money put option and write an out-of-the-money call option simultaneously for the same underlying asset. When trading options, it is often used by investors after a long position in a stock has experienced huge gains. This helps investors lock in profits without selling their shares.
Here an investor purchases both a call and put option using the same strike price, underlying asset, and expiration date at the same time. This is often used when the investor believes that there will be a significant movement in the price of the underlying asset but is unsure of which direction the movement will take.
With the long strangle strategy, the investor purchases a call and put option with the same maturity and underlying asset but with different strike price. The put strike will usually be below the strike price of the call option and both options will be out of the money. This is used when an investor believes that the price of the underlying asset will experience a large movement but is not sure of which direction the move will take.