Here is a list of 6 best strategies for options trading that will make you successful.
6 Best Strategies For Option Trading
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| 6 Best Strategies For Option Trading |
Note: this list contains strategies that are easy to read and understand. Each has less risk than stock.
Most involve moderate risks. For investors who are not accustomed to choosing options read our beginner options policy and intermediate options policy terms.
1. Combined call writing strategies for option Trading
Using the stock you already own (or buying new stocks), you are selling another call option that gives the buyer the right to buy your stock at a certain price.
That reduces the profit potential. You collect the money you pay for your own to keep, or whatever else happens. That amount reduces your costs.
Therefore, if stocks fall in price, you may lose, but you are better off than if you were a shareholder.
Example: Buy 100 shares of IBM
Sell one IBM Jan 110 phone
2. Cash safe cash deposit strategies for option Trading
Sell the stock option you want to have, choosing a strike price that represents the amount you are willing to pay for the stock.
You are collecting money to repay the receipt of an obligation to buy stock by paying the strike price. You may not buy the stock, but if you don't buy it, you keep the premium as a consolation prize.
If you keep enough cash in your trading account to buy stocks (if the designated owner uses the stock), then you are considered ‘financially secure.’
Example: Sell one AMZN Jul 50 set; save $ 5,000 in an account
3. Collar strategies for option Trading
The collar is a covered call position, with put in the put. Put works as an insurance policy and reduces losses to a small (but flexible) amount.
Profits are also restricted, but conservative investors find that it is a good trade to limit profits by restoring limited losses.
Example: Buy 100 shares of IBM
Sell one IBM Jan 110 phone
Buy one IBM Jan 95 one
4. Widening of credit strategies for option Trading
Purchase of one call option, and sale of another. Or the purchase of one storage option, and the sale of another. Both options have the same expiration. It is called the spread of debt because the investor collects money to trade. Therefore, the more expensive option is sold, and the less expensive one is purchased without the optional currency. This strategy has a market bias (telecommunications is bearish and placement is a progressive trend) with limited profitability and limited losses.
Example: Buy 5 calls JNJ Jul 60
Sell 5 JNJ Jul 55 calls
or Buy 5 SPY Apr 78 sets
Sell 5 SPY Apr 80 sets
5. Iron condor strategies for option Trading
A position that contains the distribution of one telephone credit and another sets the spread of credit. Also, gains and losses are limited.
Example: Buy 2 SPX calls May 880
Sell 2 SPX May 860 calls
and Buy 2 SPX May 740 sets
Sell 2 SPX in May 760 sets
6. Horizontal (or double) spread strategies for option Trading
This spreads when options have different strike rates and different expiration dates.
A. The purchased option is more expired than the sold option
B. Purchased options are out of cash rather than sold
Example: Buy 7 calls XOM Nov 80
Sell 7 XOM phones Oct 75 This is a consistent spread
Or Buy 7 XOM Nov 60 sets
Sell 7 XOM Oct 65 sets This corresponding spread
So above are the best strategies for option trading.
Also read basics of Option Trading
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